The Federal Deposit Insurance Corp. insures certain accounts at banks to protect you if the bank goes out of business, making those accounts truly safer than stuffing the money under your mattress. However, some types of accounts aren't covered by the FDIC. So to figure out whether your bank IRA is covered, you need to know how it's invested.
The FDIC insures deposit accounts up to its coverage limits at member institutions such as banks. Deposit accounts include money in checking accounts, savings accounts, money market deposit accounts and certificates of deposit. If the bank goes under, you’re guaranteed to get your money back from those accounts.
Other investment accounts, including money market mutual funds, mutual funds and stocks held in brokerage accounts, aren’t covered because you don’t lose them when the bank goes under. For example, if the bank holding your IBM shares goes out of business, you still own the shares.
Covered IRA Accounts
An IRA can have a wide range of investments, from savings account to certificates of deposit to mutual funds to specific stocks or bonds. If you keep your IRA at an FDIC-insured bank, only the money in FDIC-insured accounts is covered.
For example, say $100,000 of your bank IRA is invested in a certificate of deposit and $50,000 is invested in mutual fund shares. Only the $100,000 in your certificate of deposit is covered.
Separate Coverage Limits
As of 2013, the FDIC coverage limit is $250,000 per person, per account type, per bank. Retirement accounts are a separate category when you’re figuring out how much of your IRA is covered by FDIC insurance, so up to $250,000 per bank is covered.
For example, say you have $150,000 in a savings account and $200,000 in your IRA at the same bank. Because those accounts are in different categories, all $350,000 is protected in case the bank fails.
Similarly, if you have $220,000 in a covered IRA at one bank and $230,000 in a covered IRA at another bank, the entire $450,000 is covered if either or both banks fail, because the amount at each bank is within the limit.
If you're married, the coverage limits apply separately to your IRA and to your spouse's IRA at the same bank, because the accounts are owned by different people.
For example, you could have $250,000 in money market deposit accounts in your IRA and your spouse's IRA could have $250,000 of certificates of deposit at the same bank, and the entire $500,000 would be covered. However, simply adding a beneficiary to your IRA won't affect how it's covered.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."