Protecting your savings and investments

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By Doug Awad

In the wake of turbulence in the financial markets, many people are reviewing the legal protections available for assets held by banks, credit unions, and securities dealers. Here are some of the protections available.

Bank deposit accounts: Generally, deposit accounts at banks insured by the Federal Deposit Insurance Company (FDIC) are insured up to $100,000 per depositor per bank. FDIC covers checking, NOW, and savings accounts; money market deposit accounts; and time deposits, such as certificates of deposit (CDs).

It does not cover money market mutual funds, stocks, bonds, mutual funds, life insurance policies, annuities, or other securities, even if they were bought at an FDIC insured bank.

You cannot increase your protection simply by opening more than one account in your name at the same bank (for example, splitting your money between a savings and a checking account, or opening accounts at different branches of the same bank). However, deposits that represent different categories of ownership may be independently insured.

For example, a joint account qualifies for up to $100,000 of coverage for each person named as a joint owner of the account. That coverage is in addition to the $100,000 maximum coverage for individual accounts for each person.

For example, a married couple with three accounts at one bank – they each have $100,000 in an individual account, and they also have $200,000 in a joint account – would qualify for FDIC coverage of the entire $400,000. The limit on the amount protected in one or more retirement accounts is $250,000. This is separate from the $100,000 coverage of individual accounts.

Remember, though, that FDIC insurance applies only to deposit accounts, not to any securities held in an IRA or other retirement account.

Your bank may have additional protection. For example, in some states, a state-chartered savings bank must carry additional insurance to cover losses beyond FDIC the limits. Some banks may participate in the Certificate of Deposit Account Registry Service (CDARS), which enables a bank to spread large CD deposits among multiple banks while keeping the amount at each individual bank, including itself, within the FDIC limits.

Credit unions: Members share accounts at most credit unions are insured by the national Credit Union Share Insurance Fund (NCUSIF). It is administered by the National Credit Union Administration (NCUA), which is an independent agency of the federal government and is backed by the full faith and credit of the U.S. Treasury.

Some credit unions are not federally insured but are overseen by state regulators. They typically have private credit insurance.

NCUSIF insurance is similar to FDIC. It covers single-owner accounts up to $100,000 per customer per institution.

Retirement accounts such as IRAs and Keoghs have separate coverage up to $250,000. As with bank deposit accounts, independent coverage may be available for different categories of ownership. Their Web site is http://webapps.ncua.gov/ins/.

Brokerage accounts with SIPC: Most brokerage accounts are protected by the Securities Investor Protection Corp (SIPC). Unlike FDIC, the SIPC is not a government agency but a nonprofit corporation funded by its membership, which is comprised of broker-dealers registered with the Securities and Exchange Commission.

Any broker-dealer that is not SIPC insured must disclose that fact to customers.

SIPC was created by Congress in 1970 to help return customer property, including both securities and cash in brokerage accounts, if a broker-dealer or clearing firm experiences insolvency, unauthorized trading or securities that are lost or missing from a customer’s securities account. Many brokerage firms also carry additional private insurance to extend coverage beyond SIPC limits.

Should a SIOPC firm become insolvent, SIPC would request a court to appoint a trustee to supervise transfer of customer securities and cash. For individual accounts, SIPC covers a maximum of $500,000 per customer (including up to $100,000 in cash) at a given brokerage house or clearing firm. As with bank, total coverage can be higher for multiple accounts at one institution, depending on how they’re held. For example, a married couple with two individual and one joint account could have up top $1.5 million eligible for coverage.

It’s important to remember that SIPC does not protect against market risk or price fluctuations. The value of the securities at the failed institution is determined as of the date upon which a trustee is appointed.

In general, SIPC covers notes, stocks, bonds, mutual funds and other shares in investment companies. It does not cover investments that are not registered with the SEC, such as certain investment contracts, limited partnerships, fixed annuity contracts, currency, gold, silver, commodity futures contracts or commodities options.

If you have questions, call Doug Awad at 854-6866, or e-mail Doug.Awad@raymondjeames.com. He is a resident on the 200 Corridor and his office is on 31st Road, adjacent to Paddock Mall.

This information was partially developed by Forefield, Inc., an independent third party. It is general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or solicitation to buy or sell any security.

Investments and strategies mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James & Assoc., Inc does not provide advice on tax, legal or mortgage issues. These matters should be discussed with an appropriate professional.