Given the recent turmoil in the U.S. financial system,many investors are concerned about the safety of their cash and money market funds. This presents us with an opportunity to review the asset protection provided by institutions such as the Federal Deposit Insurance Corporation(FDIC), the National Credit Union Administration (NCUA), the Securities Investor Protection Corporation (SIPC), as well as the new program established by theU.S. Treasury for money market mutual funds. As this article goes to press (on October 23rd), it seems that the laws, rules, and regulations are changing daily. We have done our best to stay on top of these changes and provide you with up-to-date information.
The FDIC insures all deposits at insured banks and savings associations, including checking, savings accounts, money market deposit accounts, and certificates of deposit, up to the insurance limit. It does not insure money invested in stocks, bonds, mutual funds, money market funds, life insurance policies, annuities, or municipal securities.
On October 3rd, FDIC deposit insurance temporarily increased to $250,000 per depositor per insured bank through December 31, 2009. (Previously the basic insurance amount was $100,000, and the insurance amount for self-directed retirement accounts was $250,000.) Separate FDIC coverage applies to deposit accounts held in different categories of ownership,e.g., Single Accounts, Retirement Accounts, Joint Accounts, and Revocable Trust Accounts. In essence, you may qualify for greater than the basic insurance amount at one institution if you own accounts in each of these different categories.
§ Single Accounts are titled in only one person’s name. All single accounts at the same institution are added together and the total insured amount is $250,000.
§ Retirement Accounts are owned by one person and titled in the name of thatperson’s retirement plan. The following plans are insured: Individual Retirement Accounts (including traditional, Roth, SEP, and SIMPLE IRAs), Section 457 plans, self-directed defined contribution plans, and self-directed Keogh plans. All retirement plan accounts at the same institution are added together and the total is insured up to $250,000. Insurance coverage is not related to named account beneficiaries.
§ Joint Accounts are owned by two or more people, and each person’s share is insured up to $250,000. Thus, a joint account owned by a couple may have up to $500,000of coverage. An individual’s shares of all joint accounts at the same insured bank are added together and the total insured amount is limited to $250,000.
§ Revocable Trust Accounts may be either payable-on-death (POD) accounts or living trust accounts. The trust owner receives $250,000 of insurance for the interest of each qualifying beneficiary, i.e., the owner’s spouse, child, grandchild, parent, or sibling.
The most common ownership categories have been discussed above. For more details regarding how to apply the rules or for information regarding other ownership categories, please call us or consult the FDIC website. Visit www.myFDICinsurance.gov and use EDIE the Estimator to learn more about your coverage.
On October 14th, the FDIC announced the Temporary Liquidity Guarantee Program, which provides two forms of protection.First, it guarantees certain newly issued senior unsecured debt, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Instruments issued before June 30th, 2009 would be protected until June 30th, 2012. Additionally, the new program provides unlimited deposit insurance coverage for non-interest bearing deposit transaction accounts, which are mainly payment-processing accounts used by businesses. This guarantee expires at the end of 2009.
Similar to the protection afforded by the FDIC to member banks, the National Credit Union Administration provides share insurance to account holders at insured credit unions. As of October 3, 2008, share accounts are insured up to $250,000 until December 31, 2009. NCUA coverage is very similar to that provided by the FDIC. To help you better understand your share protection, the NCUA has provided an “Estimator” on its website.
As of October 3, 2008, share accounts are insured up to$250,000 until December 31, 2009. Coverage is applied on a per credit union basis, so the maximum coverage amount applies to accounts at each credit union. Separate coverage is available on multiple accounts if you have different ownership interests in different types of accounts. The ownership categories are similar to those defined by the FDIC: single accounts, retirement accounts,joint accounts, and revocable trust or payable on death accounts. The NCUA website states that if a credit union fails, payouts are usually done within three days from the time the institution closes its doors.
In September 2008, the Treasury Department announced the establishment of and opened a guaranty program for money market mutual funds.Investors in participating money market funds are protected against those funds”breaking the buck,” or falling below the standard $1 net asset value. The program will initially operate for a three month term, after which the Secretary of the Treasury may choose to renew the program up to September 18, 2009.
Coverage is only provided to shareholders for the amounts held in participating funds as of September 19, 2008. Both taxable and tax-exempt money market funds are eligible to participate. However, only those fund companies who apply for and pay a fee to participate in the program are eligible for protection. Schwab, Fidelity, and Vanguard money market funds have applied for coverage under the program. You will need to contact other institutions directly to determine if they are participating.
Essentially, the Treasury’s guaranty program will protect whatever amounts you held in a participating money market fund as of September19, 2008 as long as the program remains in effect.
SIPC helps individuals whose money, stocks, and securities are stolen by a broker or put at risk when a brokerage fails for other reasons. While cash and securities are protected, commodity futures contracts and currency, as well as investment contracts, such as limited partnerships, are ineligible for protection. SIPC provides up to $500,000 of coverage for accounts held in each separate category, with a limit of $100,000 for cash claims.
Are Your Assets Protected?
As your financial advisors, we are concerned with ensuring the security of your financial assets and data. We have selected financially sound and experienced custodians – Charles Schwab & Co., Inc. and Fidelity Investments. Both are financially healthy institutions, and both have the internal controls and business standards necessary to keep your assets safe. Your accounts held at both institutions are protected by SIPC insurance.
It is important that you be vigilant about protecting your assets outside of Schwab and Fidelity before a problem strikes. Ensure that your banks and savings associations are FDIC insured. Credit unions should have National Credit Union Share Insurance. Membership in SIPC is automatic for brokerage firms with few exceptions, but participation in the Treasury’s money market guaranty program is not automatic.
If you have concerns about the safety of your assets,please call us immediately.
Asset Safety
December 11, 2008
Laurie A. Belew, MS,MBA
Given the recent turmoil in the U.S. financial system,many investors are concerned about the safety of their cash and money market funds. This presents us with an opportunity to review the asset protection provided by institutions such as the Federal Deposit Insurance Corporation(FDIC), the National Credit Union Administration (NCUA), the Securities Investor Protection Corporation (SIPC), as well as the new program established by theU.S. Treasury for money market mutual funds. As this article goes to press (on October 23rd), it seems that the laws, rules, and regulations are changing daily. We have done our best to stay on top of these changes and provide you with up-to-date information.
Federal Deposit Insurance Corporation (FDIC)
http://www.fdic.gov/
The FDIC insures all deposits at insured banks and savings associations, including checking, savings accounts, money market deposit accounts, and certificates of deposit, up to the insurance limit. It does not insure money invested in stocks, bonds, mutual funds, money market funds, life insurance policies, annuities, or municipal securities.
On October 3rd, FDIC deposit insurance temporarily increased to $250,000 per depositor per insured bank through December 31, 2009. (Previously the basic insurance amount was $100,000, and the insurance amount for self-directed retirement accounts was $250,000.) Separate FDIC coverage applies to deposit accounts held in different categories of ownership,e.g., Single Accounts, Retirement Accounts, Joint Accounts, and Revocable Trust Accounts. In essence, you may qualify for greater than the basic insurance amount at one institution if you own accounts in each of these different categories.
§ Single Accounts are titled in only one person’s name. All single accounts at the same institution are added together and the total insured amount is $250,000.
§ Retirement Accounts are owned by one person and titled in the name of thatperson’s retirement plan. The following plans are insured: Individual Retirement Accounts (including traditional, Roth, SEP, and SIMPLE IRAs), Section 457 plans, self-directed defined contribution plans, and self-directed Keogh plans. All retirement plan accounts at the same institution are added together and the total is insured up to $250,000. Insurance coverage is not related to named account beneficiaries.
§ Joint Accounts are owned by two or more people, and each person’s share is insured up to $250,000. Thus, a joint account owned by a couple may have up to $500,000of coverage. An individual’s shares of all joint accounts at the same insured bank are added together and the total insured amount is limited to $250,000.
§ Revocable Trust Accounts may be either payable-on-death (POD) accounts or living trust accounts. The trust owner receives $250,000 of insurance for the interest of each qualifying beneficiary, i.e., the owner’s spouse, child, grandchild, parent, or sibling.
The most common ownership categories have been discussed above. For more details regarding how to apply the rules or for information regarding other ownership categories, please call us or consult the FDIC website. Visit www.myFDICinsurance.gov and use EDIE the Estimator to learn more about your coverage.
On October 14th, the FDIC announced the Temporary Liquidity Guarantee Program, which provides two forms of protection.First, it guarantees certain newly issued senior unsecured debt, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Instruments issued before June 30th, 2009 would be protected until June 30th, 2012. Additionally, the new program provides unlimited deposit insurance coverage for non-interest bearing deposit transaction accounts, which are mainly payment-processing accounts used by businesses. This guarantee expires at the end of 2009.
National Credit Union Administration (NCUA)
http://www.ncua.gov/
Similar to the protection afforded by the FDIC to member banks, the National Credit Union Administration provides share insurance to account holders at insured credit unions. As of October 3, 2008, share accounts are insured up to $250,000 until December 31, 2009. NCUA coverage is very similar to that provided by the FDIC. To help you better understand your share protection, the NCUA has provided an “Estimator” on its website.
As of October 3, 2008, share accounts are insured up to$250,000 until December 31, 2009. Coverage is applied on a per credit union basis, so the maximum coverage amount applies to accounts at each credit union. Separate coverage is available on multiple accounts if you have different ownership interests in different types of accounts. The ownership categories are similar to those defined by the FDIC: single accounts, retirement accounts,joint accounts, and revocable trust or payable on death accounts. The NCUA website states that if a credit union fails, payouts are usually done within three days from the time the institution closes its doors.
Treasury Guaranty Program
http://www.ustreas.gov/
In September 2008, the Treasury Department announced the establishment of and opened a guaranty program for money market mutual funds.Investors in participating money market funds are protected against those funds”breaking the buck,” or falling below the standard $1 net asset value. The program will initially operate for a three month term, after which the Secretary of the Treasury may choose to renew the program up to September 18, 2009.
Coverage is only provided to shareholders for the amounts held in participating funds as of September 19, 2008. Both taxable and tax-exempt money market funds are eligible to participate. However, only those fund companies who apply for and pay a fee to participate in the program are eligible for protection. Schwab, Fidelity, and Vanguard money market funds have applied for coverage under the program. You will need to contact other institutions directly to determine if they are participating.
Essentially, the Treasury’s guaranty program will protect whatever amounts you held in a participating money market fund as of September19, 2008 as long as the program remains in effect.
Securities Investor Protection Corporation (SIPC)
http://www.sipc.org/
SIPC helps individuals whose money, stocks, and securities are stolen by a broker or put at risk when a brokerage fails for other reasons. While cash and securities are protected, commodity futures contracts and currency, as well as investment contracts, such as limited partnerships, are ineligible for protection. SIPC provides up to $500,000 of coverage for accounts held in each separate category, with a limit of $100,000 for cash claims.
Are Your Assets Protected?
As your financial advisors, we are concerned with ensuring the security of your financial assets and data. We have selected financially sound and experienced custodians – Charles Schwab & Co., Inc. and Fidelity Investments. Both are financially healthy institutions, and both have the internal controls and business standards necessary to keep your assets safe. Your accounts held at both institutions are protected by SIPC insurance.
It is important that you be vigilant about protecting your assets outside of Schwab and Fidelity before a problem strikes. Ensure that your banks and savings associations are FDIC insured. Credit unions should have National Credit Union Share Insurance. Membership in SIPC is automatic for brokerage firms with few exceptions, but participation in the Treasury’s money market guaranty program is not automatic.
If you have concerns about the safety of your assets,please call us immediately.