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Protecting Your “Safe” Money By Michael Haubrich, CFP |
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The turbulence
confronting our financial markets is enough to make anyone anxious right
now…in fact, it’s enough to make everyone anxious. September, which I’m sure
will be branded with some dark euphemism before long, will go down in history
as one of the most remarkable times in our country’s financial history.
Sadly, history isn’t the only thing going down, as evidenced by the daily
headlines. On September 15, the Dow Jones Industrial Average lost more than
500 points, and that felt like only the warm up act to the nearly 800 point
drop of earlier this week. Long-standing, highly regarded financial institutions
have closed or been taken over. Others have averted disaster only because of
government intervention. The powers of government have been hosting long and
contentious sessions in attempt to address the crisis. Many financial pundits
are comparing these times to the Great Depression and that comparison offers
little in the way of optimism. The crisis hitting
financial institutions provides a good opportunity to reinforce your
understanding of how guarantees work to protect the so called “safe” part of
your portfolio – the money you have in banks. Accounts issued by a bank
are protected through the Federal Deposit Insurance Corporation (FDIC), an
independent government agency. Today, the FDIC protects depositors against
the loss of their deposits up to $250,000 per account and $250,000 in
the case of a retirement account, such as an IRA or ROTH IRA, in the event
that an FDIC-insured institution fails. It’s important to note that as of
this writing, there is a proposal by the House Republicans to alter FDIC
insurance rules that could increase or remove the per accounts limits, so you
would do well to monitor the situation and the outcomes of the pending
legislation to ensure you keep current with the shifting details. As early as
Thursday, Congress is expected to vote on a proposed plan which may include
increasing or eliminating the limits to FDIC insurance resulting in greater
protection of the money you have in banks. As it stands today, the
significance of the “per account” coverage is that you can have significantly
more than $250,000 at a particular bank and still be insured, assuming there
are different ownership registrations on the accounts. For instance, a
husband and wife could each have an individual account in their respective
names each for $250,000 plus a joint account for another $250,000 per
person which would provide total coverage of $1,000,000 at the same
bank. Another way to accomplish the higher protection amount is to establish
multiple payable on death (POD) accounts for beneficiaries. Each account has
its own $250,000 limit. For example, a person with POD accounts to three
different beneficiaries could insure up to $750,000. It’s important to note
that you will not have increased coverage simply by using different Social
Security numbers or by substituting “and” for “or” on joint account titles.
Also, you should know that the main office of a bank and all branch offices
and internet divisions of the bank are considered one insured bank. So, you
cannot increase the amount of insurance coverage by having multiple accounts
in multiple locations of the same insured bank. The FDIC does not insure
money invested in stocks, bonds, mutual funds, life insurance policies,
annuities even if they were purchased from an insured bank. U.S. Treasury
bills, bonds or notes are also not covered by FDIC insurance. Contents of
safety deposit boxes are not included as covered items under FDIC. Money market mutual funds
may be eligible for government guarantees offered outside the FDIC and you
should check with your mutual fund or financial advisor to determine if your
money market mutual fund qualifies for this protection. For more information on
specific ways your accounts in banks can be protected, visit http://www.fdic.gov/deposit/deposits/insured/index.html
or call the FDIC at 1-877-275-3342 (7am to 7pm central time) Monday through
Friday. If legislation does not
pass that would increase or eliminate the limits, we recommend you review
your bank account balances to make sure they fall under the covered amounts
at each institution. You may want to visit or revisit your ownership
registrations and make any necessary changes if your account balances exceed
the covered amounts. If in doubt, consult with your financial advisor for
information or clarification.
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