Your Exceptional Life

There’s been a lot of ink spent on the run on Indymac. This is pretty interesting to me. Today I’m going to talk a little about FDIC insurance, SPIC insurance and how to keep your accounts safe and insured by the federal government. Once you accomplish this level of safety, there’s no reason to stand in line for four hours to get your money. Once the Fed reopens the bank, which is generally a day or so at the most, your insured money is safe and available.

FDIC is the Federal Deposit Insurance Corporation. It was founded in 1933 in the midst of the many bank failures of the Depression. Back then they paid out a lot of disbursements on failed banks. These days a lot fewer banks fail due to stricter regulations. If you walk into your bank and there is an FDIC sign on the door, there’s a good chance your deposits are insured to $100,000.  Before you make that large deposit, ask if they are FDIC insured.  The problems arise for consumers when they keep over $100,000 in a single account. Some instances where this might occur would be if someone sold a house and put the equity of $180,000 into an account for a month or two until they were ready to purchase their next home. The $100,000 would be insured, but $80,000 of this account and any interest earned would not be insured. The potential for loss in this account is in excess of $80,000.  It is always advisable to keep the account balance in any one bank account below $100,000 so that the interest in protected as well. So if there is $270,000 that needs to be held in a bank, it would be best to spread that out over three accounts, thereby protecting the principle and the interest.

The SIPC is the Securities Investors Protection Corporation. While the FDIC insures cash deposits, the SIPC insures securities on deposit with brokers. A broker in the securities business is defined as a broker-dealer. Morgan Stanley, Oppenheimer, Merrill Lynch, Schwab are all broker dealers. Essentially, the SIPC helps you get back your securities. Securities are stocks, bonds and similar investment vehicles. The cash limit on SIPC claims is $100,000 but the securities limit is $500,000. Just like bank accounts, it is important to keep your brokerage account cash balance under $100,000 to maintain that protection. Additionally, it is important to keep the account balance for securities under $500,000. in each account. So if a customer has $2,000,000 in securities and $250,000 in cash, that should be spread out over six accounts to maintain SIPC insurance.

Those simple steps will keep your investment insured and keep you out of those long lines in the event the bank or broker should fail.