There has been a lot of concern regarding failures of banks, money markets losing value, and overall safety of money.  You need to know how the insurance works!

Regardless of whether or not we are in a credit crisis, you still need to make sure that you are being smart with your money, especially regarding the safety of your money.  I am not talking about gains and losses in your investments.  I am talking about your bank accounts, savings, accounts, and money market accounts.

The bottom line:

Make sure you are within the limits of the insurance coverage that is available for you.

What if my bank goes under?

If you have money in a CD, bank account, or savings account make sure that it is in a FDIC-insured bank.  Further, make sure you stay within the limits of the FDIC regarding FDIC insurance.

The Federal Deposit Insurance Corporation (FDIC) was created by Congress in 1933 to protect consumers against bank failure.  The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. 

The FDIC insures up to $100,000 per person per bank. So if you have $105,000 in a CD, it will insure that you will receive $100,000 of that back in the event of a bank failure.

If you have a joint account, that joint account is insured up to $200,000.  Remember the rule of thumb is $100,000 per person per bank.  If you have an IRA, that $100,000 increases to $250,000 because of legislation passed by Congress.

The FDIC doesn’t insure investment accounts or money market accounts. This only applies to savings, bank, and CD accounts.  It also applies to various other cash type instruments.

What about money at my credit union?

The shares in your credit union are insured by the National Credit Union Share Insurance Fund (NCUSIF).  It is important to make sure that your credit union participates.  They will insure up to $100,000 per individual for savings accounts and then for retirement accounts the amount increases to $250,000.

What about Insurance Contracts and Annuity Contracts?

Do you have an AIG annuity contract and have some concerns?

The Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association's coverage of individual annuity contract is limited to $100,000 per annuity owner per company.  You have this amount of coverage in the event a company fails.

What about life insurance?

Death benefits are insured up to $300,000 per individual.  Total benefits up to a total of $5,000,000 are available to any owner of multiple non-group life policies.

What about my investment accounts at a brokerage company?

The Securities Investor Protection Corporation, commonly known as SIPC, provides customers with limited protection.  The SIPC, a non-profit, non-government membership group, is the insurance body for the investment/brokerage industry.

It protects up to $500,000 per customer.  Of that $500,000 coverage, $100,000 coverage applies to cash in the account.  It only protects customers in the event the brokerage company (not the investments) fails or the broker steals the customer’s money.  It doesn’t protect against investment value loss.

What about money market accounts?

Generally speaking, money market accounts are not federally insured.  Thus, you want to make sure that you are comfortable with how your investment company is managing your money market. 

Is my 401(k) plan safe if my company goes out of business? 

If an employer goes out of the business, the 401(k) plan is terminated.  When a plan is terminated, affected participants are 100% vested (they own their employer match) in all employer money in their account, regardless of the plan’s vesting schedule. Participants are always fully vested in their own contributions.  Participants always own their own investment accounts.  This means that the money in the plan is now available to be distributed to the plan participants.  Under the law, the employer, even in bankruptcy, can’t touch the money in the plan.  The 401(k) plan money can’t be used for any other purpose except to pay benefits and expenses related to the plan.

The 401(k) assets are also protected by law from creditors.