If banks are certified and backed by the government, then why during financial crisis do people lose out on their retirement investments?
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401Ks are not the types of investments certified by the government – you are thinking about standard checking and savings accounts. While they may be _run_ by banks (or other financial management companies) they are really investment accounts at their core. 401ks invest in various stocks and bonds to grow your money, and those investments are not protected from losses.
When the government backs a bank via the FDIC, they are saying “If you have $50,000 in your account, we will make sure you are able to get your $50,000 even if the bank goes bankrupt. You will get exactly what you own, no more, no less.”
When you have a 401K, the account may have an equivalent value in dollars listed, but what you actually own are shares in companies. During a crisis, there is a risk that a company will go bankrupt or lose significant value. The government will also make sure you have access to exactly what you own, even if what you own is ten thousand shares of a bankrupt company.
Investments in stocks go up and down in value. Protections mean your account can’t just go “poof!” because a bank fails, but there is no guarantee about the value of the assets you own within your account.
Often, people panic during financial crises and sell when stocks go down, realizing the losses. If they would just sit tight, and even buy into the dip, they’ll come out ahead when the markets eventually go back up.
Your bank accounts holding your cash (demand deposits) are backed by FDIC, FCUA, etc. So if the bank becomes insolvent, the insurance funds will make you whole again – up toa point.
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Investments such as those found in 401(k) are not insured and can, and do, lose value.
Some people have their retirement accounts invested in stocks or other assets with values that may fluctuate, hoping to obtain a better rate of return at the risk of potential losses during bad times.