How to Protect Your Money from Bank Failures and Fallout
The news on Wall Street is simply not good, beginning with the challenges in the insurance industry through recent bailouts of AIG. Banks are failing and you may be worried about the safety of your checking, savings and investment accounts. Having the information you need about how to protect your money will allow you to choose the best course of action for your investments. While you may be tempted to stash your money in your mattress, there are better options.
Your basic bank accounts, including checking and savings accounts, are insured and protected. The Federal Deposit Insurance Corporation insures your money up to $100,000 at all banks. If you are well off enough that this limit is inadequate, simply opt to maintain accounts at multiple banks with deposits at each bank tallying less than $100,000. The FDIC will pay out sums lost due to theft, bank closings or failures and similar occurrences, and does so efficiently. This valuable insurance applies to all standard bank accounts; however, brokerage accounts carry their own protections in case of failure.
While brokerage accounts are not insured against poor investments, there are protections in place in case of bank failure. The Securities Investor Protection Corporation insures brokerage accounts. While your broker may work in your bank, you should be aware that brokerage accounts, due to the nature and changes of high risk investing are not FDIC insured. The SIPC provides a total sum of $500,000 in coverage should a bank failure or fallout occur. Up to $100,000 of this may be paid out in cash, with the remainder in stocks and bonds. Even with those protections in place, choosing a reputable brokerage firm is always a smart decision.
You can feel secure in the safety of your bank accounts and brokerage accounts against actual loss; however, making the right investment choices in a time like this can be a challenge. The right course of action may depend upon how many years you have until retirement. If you have time to allow the market to recover, waiting out the current crisis is a viable option. If you are nearing retirement, you may choose to pull your investments from the market and opt for more stable and less risky choices.
Experts suggest that 60-70% of your total portfolio should be in the stock market. The remaining 30-40% should be invested in low risk, accessible mutual funds and money market accounts. When the market begins to rebound, these funds may be used to buy bargain stock and improve your portfolio. Diversifying your investment strategy can help to protect you from shifts in the market, while still allowing you to make the most of your money.
We have been through some hard times over at our site the last few years working with many partners who have closed shop or not even paid us fees for referrals. Some of the banks that closed shop include Netbank, Indy Mac, and WaMu who offered one of the best savings rates ever. We were saddened to see them fail. There were others such as Ameriquest who did dirty deeds to get their ways and Countrywide who gave bad loans who is now part of Bank of America.
Who will be next?
There are rumors that Citibank or Wachovia could be the next major bank to fail but we do not believe them yet. Citibank’s stock may be down to record lows but it is not at the point of failing like Washington Mutual has been for months. Just make sure that you keep under $100,000 in your savings or money market accounts at these remaining banks since it is guaranteed by the FDIC even if you are banking at a sound bank such as Chase.