Maximizing FDIC Coverage for Your IRA: A Comprehensive Guide

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Understanding FDIC Insurance for Your IRA

Is your IRA insured by the Federal Deposit Insurance Corp. (FDIC)? The answer depends on where and how you hold your IRA. A traditional or Roth IRA may be covered for up to $250,000 if your bank is FDIC insured and you keep your money in a deposit account.

What Is the FDIC?

The FDIC is an independent government agency that insures deposits against bank failure. If an FDIC-insured bank or savings association fails, the FDIC replaces depositors’ funds dollar-for-dollar (up to certain limits), including interest. Congress created the FDIC in 1933 to maintain stability and public confidence in the U.S. banking system following a period when bank failures were on the rise. Since the FDIC introduced insurance coverage in 1934, insured depositors haven’t lost any deposits due to bank failure.

How IRA FDIC Insurance Works

If your IRA is covered by FDIC insurance, your money is reimbursed dollar-for-dollar in the event of a bank failure, often within a few days. The FDIC replaces your lost deposits plus any interest you’re due. FDIC insurance does not cover losses from theft or fraud, only losses related to bank failure. Your eligible accounts are insured automatically when you bank at an FDIC-insured institution. FDIC insurance doesn’t cost you—or the U.S. taxpayers—anything: Banks pay for it.

Is Your IRA at an FDIC-Insured Bank?

The FDIC only covers deposits at FDIC-insured banks and savings associations. Your IRA is not FDIC-insured if you hold it at a credit union (which may be insured by the National Credit Union Association, or NCUA) or an investment company or brokerage (which may be insured by the Securities Investors Protection Corporation, or SIPC). While most banks are FDIC-insured, a few aren’t. Search the FDIC website to confirm that your financial institution is FDIC-insured if you aren’t sure.

Is Your IRA a Deposit Account?

The FDIC insures deposit products, not investments and other types of financial instruments. Deposit accounts include:

• Checking
• Savings
• Money market deposit account
• Certificate of deposit (CD)

What About Investments From Your Bank?

If you opened an IRA that invests in stocks, bonds, or mutual funds, it’s likely not FDIC-insured, even if your bank is. The FDIC does not insure investments such as:

• Stocks
• Bonds
• Mutual funds
• Crypto assets
• Life insurance
• Annuities
• Municipal securities
• Safe deposit boxes
• U.S. treasury bills, bonds, or notes

Additionally, investments purchased at a bank branch or on your bank’s website may be offered through third-party providers that partner with your bank. As such, the money you use to fund these investments aren’t bank deposits.

How FDIC Coverage Limits Work

The FDIC limits the amount of coverage it provides: up to $250,000 per depositor, per FDIC-insured bank, and per ownership category. Here’s how that breaks down:

• $250,000 per depositor: Accounts you own by yourself are insured up to $250,000. If you own an account jointly with your spouse, you are each insured up to $250,000 for a total of $500,000.
• $250,000 per bank: You can multiply your coverage by opening accounts at different FDIC-insured banks.
• $250,000 per ownership category: You’re insured up to $250,000 for accounts in each ownership category. Ownership categories include:
• Single accounts
• IRAs
• Joint accounts
• Trust accounts
• Employee benefit plan accounts
• Corporate or partnership accounts
• Government accounts

Can You Have More Than $250,000 in Coverage at One Bank?

One customer can have more than $250,000 in FDIC coverage at the same bank if their accounts are held under different categories of ownership. A single bank customer could have $250,000 in FDIC insurance coverage for their IRA account, an additional $250,000 in coverage for their individual checking and savings accounts, and a third $250,000 in coverage as the beneficiary on a trust account—all at the same bank. However, traditional and Roth IRAs are in a single ownership category, so your FDIC coverage for an IRA (or multiple IRAs) is limited to $250,000 at a single bank.

What if Your IRA Balance Is More Than $250,000?

Any amount that exceeds the FDIC limit won’t be covered. If you have an IRA with $300,000 in deposits, you may only be reimbursed $250,000 if your bank fails. For that reason, you may want to consider opening a second IRA at a different bank if your account balance is approaching $250,000. Although bank failures are rare, it makes sense to have FDIC coverage for the full value of your bank-based IRA accounts, just in case.

The Bottom Line

FDIC insurance offers invaluable coverage, provided both your bank and your account type are eligible. But, since it’s common to open an IRA at a brokerage, mutual fund company, or credit union—or purchase investments for your IRA at your bank branch or your bank’s website—you shouldn’t take FDIC insurance for granted. When in doubt, don’t hesitate to ask your bank or the FDIC for more information on how your accounts are protected, and what you can do to make sure they get covered if they currently aren’t.

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