Are My Accounts Safe? Is My Account Insured?

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Sometimes financial institutions fail. If your money — a savings account, 401k, or investment account — is with a failed firm, you might wonder if it’s safe. Will you lose everything? For most people, the answer is no. Let’s look at the safeguards available to protect your money when a financial institution fails.

Bank Failures

Credit Unions

Retirement Accounts

Retirement accounts at banks and credit unions are also insured. Generally you get up to $250,000 of coverage for all of your retirement accounts. All of your retirement accounts are added together for this purpose. However, credit unions allow you a separate $250,000 limit for Keogh plans — so you can get up to $500,000 of coverage if your accounts are properly structured.

Investment Accounts

You might have assets with firms that are not FDIC or NCUSIF insured. What happens if a brokerage firm or mutual fund company fails?

The Securities Investor Protection Corporation (SIPC) insures accounts at many of these firms. Check to see if the firm is a member of the SIPC, whether your investments are eligible, and whether you as an individual are eligible for coverage. SIPC does not insure against market losses — it only protects you if your investment firm goes insolvent and your money disappears.

SIPC insures accounts up to $500,000, but only $100,000 of that may be in cash. Some firms purchase supplemental coverage elsewhere to insure above and beyond those limits. SIPC is not guaranteed by the government.

Retirement Plans

For many people, their largest investment asset is in a company retirement plan such as a 401k. Check on your plan’s investment provider to see if they are insured by any of the entities above.

What if your employer goes bankrupt? Most retirement plan assets are held in a special trust and may not be used by the employer. However, if your employer falls on hard times (particularly a small business) you should make sure that nobody is fiddling with your account and that your deposits make it into the plan quickly.

If you participate in a nonqualified plan, you may lose benefits if your employer goes bankrupt. Some examples include nonqualified deferred compensation plans, 457(f) plans, and top-hat plans.

Do Your Homework

Hopefully this page provides some peace of mind and a starting point for your research. However, you need to verify the details (and existence) of any insurance. Check with the insurers and regulatory agencies to make sure that your institution is eligible, that you and your accounts are eligible, and that you are taking the proper steps needed to benefit from coverage. If you don’t do your own homework and verify this for yourself, your money is at risk.