How safe is your money?

July 22, 2005

It depends on where you keep it. Here are strategies to maximize your protection.

Is your bank insured by the Federal Deposit Insurance Corporation? Do you keep tabs on the total amount of all of your accounts at your bank? If you have a brokerage account, is the firm protected against brokerage failure? If you don't know the answers to these questions, take the time now to review your accounts and the financial institutions where they're held.

Frank Gresock, spokesman for the FDIC, notes, "The public hasn't lost a penny of insured funds since the FDIC began in 1933. The only unfortunate instances we see are when people think they're within the FDIC-insured limits but they've exceeded them." (FDIC-insured institutions must display an official sign at each teller station that says deposits are federally insured to $100,000; you can also check at http://www2.fdic.gov/idasp).

The basic FDIC insurance limit is $100,000 per depositor per bank and covers checking accounts (including money-market deposit accounts), savings accounts, certificates of deposit, and self-directed retirement deposit accounts, including traditional IRAs, Roth IRAs, and SEP plans. It doesn't cover mutual funds (including money-market mutual funds) or other investment products sold at some banks, such as annuities, stocks, or bonds.

You could also set up a revocable trust or testamentary account (one type is called a Payable-On-Death or POD account) to increase your coverage. These are separately insured up to $100,000 per beneficiary if the beneficiary is the owner's spouse, child, grandchild, sibling, or parent. For instance, if you open a POD account and list your five grandkids as beneficiaries, as much as $500,000 in deposits would be insured.

Another strategy is to spread your money among different banks, using all four ownership methods. Or, you could use one ownership method and put the money in as many banks as you need. To check whether all your accounts are covered, use the FDIC's Electronic Deposit Insurance Estimator at http://www2.fdic.gov/edie/index.asp. Make sure each bank has FDIC insurance and that the banks are separately chartered.

If you're a member of a credit union, the National Credit Union Share Insurance Fund (NCUSIF) provides share insurance up to the $100,000 federal limit, which is similar to the deposit insurance protection offered by the FDIC.

For your brokerage accounts, the Securities Investor Protection Corporation (SIPC) protects against the failure of its member firms, but not against market losses, which no type of insurance covers. To see if your brokerage is a member of the SIPC-most larger ones and plenty of smaller ones are-visit its Web site ( http://www.sipc.org/who/database.cfm). The coverage for eligible investments is up to $500,000 per customer, including a maximum of $100,000 for uninvested cash. Some brokerage firms provide protection beyond the SIPC limits, called "excess coverage," which may be up to the full net equity value of each account, including unlimited coverage for uninvested cash. However, as with SIPC coverage, excess coverage doesn't protect against losses due to dips in the market.