Is My Money Really Safe?
by Joan Goldwasser, Kimberly Lankford and Pat Mertz Esswein
Thursday, September 18, 2008
We have frank answers to your tough questions about banks, brokers and mortgage middlemen. When
IndyMac bank failed this summer, the lines of nervous account holders
trying to withdraw their money made headlines everywhere. But that was
an anomaly.The Federal Deposit Insurance Corp.
has taken over ten other banks this year without incident. If you are
worried about the safety of your money -- in banks or brokerages, such
as Lehman Brothers, which filed for bankruptcy September 14 -- or money
you've paid your mortgage servicer for taxes or insurance, here are
answers to your pressing questions.
Your BankerShould I worry about the safety of my bank accounts? In most instances, your money is insured by the FDIC,
which is backed by the full faith and credit of the U.S. government, up
to a limit of $100,000 at each bank. Add up all the accounts in your
name at a bank, including checking, savings and money-market accounts
as well as certificates of deposit. If your funds total more than $100,000, move the excess to another bank.My spouse and I have a joint checking account, and each of us has individual savings accounts at the same bank. How much insurance does each of us have?
Each co-owner of a joint account has $100,000 in insurance, and your
individual accounts are each insured for $100,000, for a total of
$400,000 in this example. If you want to shelter more cash, you can
open revocable-trust or payable-on-death (POD) accounts for your
spouse, children, grandchildren or siblings. Each beneficiary's account
is insured up to $100,000. Or you can just move the excess cash to
another bank.My retirement-savings accounts are with my bank. What is the maximum coverage for them? Certain types of retirement accounts are covered by FDIC insurance, including IRAs, Roth IRAs, SEP IRAs
and Keogh plans. All deposits in these types of accounts are added
together and insured up to $250,000 per person. If you have both a
regular and a Roth IRA, the assets would be added together and insured up to $250,000.I bank at a credit union. Is my money insured?
Yes. The National Credit Union Share Insurance Fund (NCUSIF), which was
established by Congress and is backed by the U.S. government, insures
individual accounts up to $100,000. As with FDIC insurance, a
two-person joint account is insured up to $200,000.Are my credit-union retirement accounts insured?
Yes, the NCUSIF covers retirement accounts, too. The funds in
traditional and Roth IRAs are added together and insured up to
$250,000; Keogh accounts are insured separately up to $250,000. If you
have both IRAs and a Keogh at your credit union, you can have a total
of $500,000 in insured retirement assets.I have a bank money-market account. Are those funds insured? Yes, but your money-market deposit account
is lumped with all other accounts bearing your name, and together they
are insured up to $100,000. Money that you keep in a money-market mutual fund
is not insured. Unlike most mutual funds, however, the share price does
not fluctuate -- it usually remains a constant $1. However, the Reserve
Primary Fund, which holds securities issued by bankrupt Lehman
Brothers, announced September 16 that its share price fell below $1.If the FDIC takes over my bank, as it recently did with IndyMac Bank, how long will it take for me to have access to my money? IndyMac's depositors had continuous access to their funds through ATM and debit cards.
After federal regulators seized the bank on a Friday, some customers
did not have online or phone access for a weekend, but everyone had
full access to all their insured money by Monday morning.If the FDIC takes over my bank, will I lose all my uninsured funds? No. IndyMac account holders had access to 50% of their uninsured funds immediately. When Mutual of Omaha Bank took over First National Bank of Nevada
and First Heritage Bank of Newport Beach, Cal., in July, depositors had
immediate access to both insured and uninsured funds.How can I check to see if all my money is insured?
Both the FDIC's Web site and the National Credit Union Administration's
site have a calculator that allows you to plug in all your accounts and
the amounts deposited so you can find out whether any of your money is
uninsured. Go to www.fdic.gov and click on the Electronic Deposit Insurance Estimator (EDIE), or go to www.ncua.gov and use its Share Insurance Estimator Report.
Your BrokerWhat happens to my brokerage account if my firm goes bankrupt?
Brokerage firms must follow strict rules about segregating customers'
investments from the firm's money, so your accounts should remain
intact even if the brokerage goes under and another firm takes over its
business. For example, stocks, bonds and mutual funds are physically
held by an independent depository, not the brokerage firm.What if the firm misappropriated my assets?
You have another layer of protection in case the firm hasn't followed
all of the rules: The Securities Investor Protection Corp. covers
stocks, bonds and other assets held at a brokerage firm that goes bust,
and nearly every brokerage firm registered with the Securities and
Exchange Commission must be a member. "We get involved only when a firm
has used up its capital and has misappropriated customers' securities,"
says Stephen Harbeck, president and chief executive of SIPC.If
a brokerage firm fails, SIPC first tries to transfer the investors'
securities to another firm. If that doesn't work, it then attempts to
rebuild the investors' portfolios, even buying new stocks or bonds to
make up for any missing shares. If the investments aren't available,
SIPC will give you cash based on their value when the brokerage failed.How much does SIPC cover?
SIPC first returns your share of the broker's remaining assets, then
uses its own funds (up to $500,000 per account, including a $100,000
limit on cash) to buy the same shares that you originally owned.What happens if I have more than $500,000 at that brokerage firm?
The $500,000 limit applies only to the maximum amount of its own money
SIPC will spend to make up for any missing securities, not the total
amount of money you can get back. If the customers' assets remain
largely intact at the brokerage firm, then you can get back a lot more
than that SIPC limit, which is a key difference between how SIPC
protects brokerage customers and how the FDIC covers bank depositors.In
the 38-year history of SIPC, only 349 people have not received the full
value of their accounts from their share of the firm's assets plus SIPC
coverage -- and most of those instances occurred three decades ago or
more.If an investor's losses exceed SIPC's limits, the difference is usually covered by the broker's supplemental insurance -- often provided by Lloyd's of London or a new firm called Capco, the Customer Asset Protection
Co. Capco provides coverage above SIPC limits to 15 major brokerage
firms, including Goldman Sachs, Morgan Stanley, Raymond James and
Wa-chovia Securities.
Do I have access to my money after SIPC takes over? That's
the most common problem. It tends to take from one week to two or three
months to regain control of your account while SIPC sorts everything
out. It can take even longer if the brokerage firm kept shoddy records
or was involved in fraud. SIPC does not protect against market losses
while your account is in limbo.For more information about how SIPC works, and to make sure your brokerage firm is a member, go to the SIPC Web site.
Your LenderWhat if my mortgage lender or servicer goes belly up? The
problem is the lender's, not yours. Continue paying your mortgage as
before. During the bankruptcy process, your lender will transfer your
loan file to a new owner or servicer, and both parties will notify you
by letter. If you mistakenly send your payment to the old lender's
address, you won't owe a late fee if you're within the federally
mandated 60-day grace period after the transfer.But what happens to my escrowed funds for taxes and insurance?
The money belongs to you, held in trust, so it won't become part of the
lender's bankruptcy assets. The new servicer will take over making tax
and insurance payments from the account. As a backstop, review your
monthly mortgage statement and the escrow account analysis
that you should receive from the new servicer within 45 days of the
transfer. If anything seems awry, call your lender or servicer, the
property-tax office or your insurance company.
http://finance.yahoo.com/banking-budgeting/article/105777/Is-My-Money-Really-Safe?
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