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Money Girl
085 MG Keep Your Money Safe from Bank Failures
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Hello and welcome to Money Girls Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. Today's episode is about how to keep your money safe in uncertain financial times. When times are tough in the financial markets, investors need to adopt a survival mindset. Sometimes the best we can hope for is not a return on our investments, but simply the return of our investments. You should always question how safe your money really is. Never assume your money is protected just because it's in a bank CD or money market fund that has traditionally been safe. The rules of the investment game are changing and every investor needs to become more aware of this. The credit crunch we're experiencing from the distressed housing market is taking its toll on financial institutions that were once considered too big and powerful to fail. As of the date of this podcast, the Federal Deposit Insurance Corporation, or FDIC, lists eight banks that have failed since the beginning of 2008. My guess is that there will probably be many more to come. I'll put a link to the FDIC failed bank list in the show notes. To help keep your money safe in today's financial environment, consider the following three guidelines. Number one, don't chase unrealistically high return investments. Extraordinary returns may be a sign that an institution is desperate for your deposits and could actually be in trouble. If you do find an irresistible offer, make sure you're okay with higher levels of risk, or that the full amount of your money will be FDIC insured. Number two, know which investments are insured by the FDIC. Make sure your deposits are held at banks with FDIC insurance. The FDIC only covers deposits in checking and savings accounts, money market deposit accounts, and time deposits, such as CDs. The FDIC does not ensure money invested in mutual funds, stocks, bonds, annuities, life insurance policies, or any type of security, even if they were bought from an insured bank. Number three, know how much the FDIC ensures. The FDIC covers the balance of each depositor's account dollar for dollar up to the insurance limit. This includes principal and any accrued interest through the date of the insured bank's closing. More about the specific insurance limits in a moment. The FDIC is an independent agency of the federal government that was created in 1933 due to the thousands of banks that collapsed in the 1920s and early 30s. The agency proudly states that since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a bank failure. However, FDIC data shows that as much as 2.6 trillion in deposits are uninsured nationwide. If your money is part of this staggering number, you should seriously consider restructuring your deposits right away. There are two kinds of FDIC coverage. One is for basic accounts and the other is for retirement accounts. Any person or legal entity can have FDIC insurance on a deposit, even those who are not US citizens or residents are covered. The basic insurance is 100,000 per depositor per insured bank. For joint accounts owned by two or more people, each co-owner is insured for their share up to 100,000. A listener named Dave writes, "I am assuming that if you had an insured savings account at a bank that went belly up, that you would still only be covered up to 100,000, which may not include any accrued interest on the savings." Thanks for the question, Dave. And you're right. It's important to understand that the combination of all your insured accounts must not exceed 100,000 to be fully insured. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. 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The place to be. To be. The FDIC insurance limit for retirement accounts is raised to 250,000 for certain types of accounts including traditional IRAs, Roth IRAs, SAP IRAs, Simple IRAs, Self-Directed 401(k) plans, and Self-Directed Kio plans. Deposits with each FDIC insured bank are insured separately from deposits at other insured banks. Deposits in different branches of the same insured bank are not separately insured. So brick and mortar branches as well as online divisions of the same bank are considered one insured bank. If two banks are affiliated such as having a common holding company but are separately chartered, they are considered separate institutions. You can confirm that banks are separately chartered if they have different FDIC certificate numbers. I'll put a link in the show notes to the FDIC Bank Find page where you can find and verify bank certificate numbers. So the best way to increase your level of FDIC insurance is to open up new accounts in a different bank once you've reached the 100,000 basic limit or 250,000 retirement account limit. In the event that your different banks merge, you still continue to have separate insurance for a grace period of six months. If you purchase a CD from a broker, it's very important to know which bank issued that CD. Find out exactly where the broker will deposit your money so you can take your FDIC insurance limit into consideration. I'll put a link in the show notes to the FDIC Guide which gives complete information on FDIC insurance. As wonderful as the FDIC insurance is for protecting consumers, it isn't perfect because the protection has limits. One secure investment that has no dollar limit on protection is U.S. Treasury Securities, U.S. Treasury bills, bonds, and notes are backed by the U.S. government which ultimately backs the FDIC. There has never been a default on U.S. Treasury securities even when government operations have temporarily shut down due to budget disputes. When financial times are tough, watch your nest egg carefully and consider taking lower but safer returns on high quality investments. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to a richer life. And if you're not subscribed to Money Girl through a podcast aggregator such as iTunes or Zoom, consider doing so. Subscriptions are free and the easiest way to get each new show as soon as they're published. I'll include a link to my iTunes podcast page where subscribing is as easy as clicking a button. And while you're in iTunes, be sure to subscribe to The Public Speaker, a new podcast in the QD Now Network of Shows created to help you improve your communication skills. The newest release is about what not to say at work. I'm glad you're listening. Canva presents your work horoscope for this week. 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