Are IRA CDs FDIC Insured?
Unpack how FDIC insurance applies to your IRA CDs. Get clear insights into federal protection for your retirement savings.
An Individual Retirement Arrangement Certificate of Deposit (IRA CD) combines the tax advantages of an IRA with the predictable returns and security of a Certificate of Deposit. These accounts generally receive protection from the Federal Deposit Insurance Corporation (FDIC). Understanding how this insurance functions is important for individuals saving for retirement.
Understanding FDIC Coverage
The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that insures deposits in banks and savings associations. This protection extends to various deposit accounts, including checking accounts, savings accounts, money market deposit accounts, and Certificates of Deposit.
The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each ownership category. If a bank fails, the FDIC reimburses depositors up to this limit. The FDIC maintains separate ownership categories to determine coverage, which include single accounts, joint accounts, and various types of retirement accounts.
IRA Accounts and FDIC Protection
Individual Retirement Arrangements (IRAs), including IRA CDs, are covered by FDIC insurance. The FDIC groups all retirement accounts owned by the same person at the same insured bank under a distinct “retirement accounts” ownership category. This category encompasses various IRA types, such as Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. It also includes self-directed 401(k) plans and other defined contribution plans.
All funds held in these different retirement accounts by one individual at a single FDIC-insured bank are aggregated for insurance purposes. This means the combined total of an individual’s retirement savings at that institution is insured up to the standard limit of $250,000. For example, if an individual has a Traditional IRA CD with $150,000 and a Roth IRA savings account with $100,000 at the same bank, their total retirement funds of $250,000 would be fully insured.
Key Considerations for IRA CD Coverage
The $250,000 FDIC insurance limit applies to the total amount held in all retirement accounts at each individual FDIC-insured bank. Individuals seeking to insure amounts exceeding this limit can distribute their IRA CD funds across multiple distinct FDIC-insured institutions. Each separate bank provides its own $250,000 coverage limit for the retirement accounts held there.
Brokered Certificates of Deposit (CDs), purchased through a brokerage firm, also receive FDIC insurance. The insurance coverage is tied to the underlying bank that issued the CD, not the brokerage firm itself. Confirm that the issuing bank is FDIC-insured and understand how these brokered CDs are titled to ensure proper coverage.
FDIC insurance covers both the principal amount deposited and any accrued interest up to the specified limit. This protects the growth of your IRA CD in the event of a bank failure. FDIC insurance does not cover investment products that are not deposits, even if offered by a bank. These uninsured products include mutual funds, stocks, bonds, annuities, and life insurance policies.