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4000 - Advisory Opinions

Insurance Coverage Provided for IRAs Held in Demand Deposit Account and Time Deposit Account by Same Individual Depends Upon Who Custodian of IRAs Is

FDIC-91-72 August 13, 1991 Adrienne George, Attorney

I am writing in response to your letter to Claude Rollin, one of our other attorneys, which was forwarded to me. I regret that it has taken me so long to respond to your question, but we have been receiving so many letters that we have not been able to answer them as quickly as we would like.

In your letter, you write that you have an Individual Retirement Account (IRA) in a demand deposit account and another IRA in a time deposit account, each in the amount of $100,000, in the same insured depository institution. You then ask how these two accounts would be insured should the institution go into default. In order to better illustrate how such accounts would be insured under different circumstances, allow me to suppose that, in addition to these two accounts, you have also deposited $100,000 in your own name in the same institution. (The FDIC would call this account an "individually-owned account.")

The answer to your question depends upon who the custodian of your IRAs is. If the custodian is an insured depository institution, then the IRA in the demand account will be separately insured from the IRA in the time account; that is, each account will be insured for up to $100,000, for a maximum insurance coverage of $200,000 on these two IRA accounts. In turn, these two accounts will also be separately insured from the individually-owned account, for a total insurance coverage of up to $300,000 on these three accounts.

However, if the custodian of your IRAs is not an insured depository institution, the IRA in the demand account will not be separately insured from your individually-owned account. Instead, the $100,000 in the demand IRA will be added to the $100,000 in the individually-owned account, and that entire amount insured for up to $100,000 only, leaving $100,000 uninsured. Meanwhile, however, the IRA in the time account will be separately insured for up to $100,000.

I should add that it is highly unusual for one to establish an IRA in a demand deposit account, thereby foregoing the interest that one might earn through another type of account. This fact makes me wonder whether, when you use the term "demand account," you do not actually mean to refer to a NOW or money market account. If the account you refer to as the "demand deposit account" were actually an IRA in the form of a NOW or money market account, that account would be considered a savings deposit for insurance purposes, and as such it would be added to the IRA account in the form of the time deposit account, and that entire amount ($200,000) would be insured for only $100,000. [As our regulations state in section 330.13(a) (please see copy enclosed, at page 48), all vested interests, excluding remainder interests, of any one natural person in time and savings deposits in an insured depository institution which qualify as one or more IRAs will be added together and insured for up to $100,000 in the aggregate.]

I hope that this information will prove useful to you. If I can be of any further help, I can be reached at (202) 898-3859.

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