I debated back and forth about posting this here. It is something that I wrote for my personal blog. I work as an accountant, and a lot of my friends were asking me what they should about their banking.
In the end, I decided to post it here. If anything, deposit insurance is a great example of how progressive politics can be implemented in a way that minimizes individual risk through an efficient governmental structure. And it has proven to be a bedrock of our financial system, which is arguably one of the most robust in the history of the world.
Without further ado, "Deposit Insurance 101:"
FDIC Insurance. FDIC insurance covers the deposits accounts of member commerical banks, as well as savings and loans. All FDIC-insurance is per bank, not per account. So the combined total of all covered accounts at a given bank count towards the limits. Member institutions guarantee covered accounts up to $100,000 per depositor for most covered accounts. IRAs are covered separately up to $150,000 per depositor.
What about joint accounts? Each 'ownership' is insured separately. Joint account ownership is counted separately from individual ownership, as long as both account holders have full access to withdraw funds. Each owner is considered to be insured for half of the value of the account.
So an individual person with no joint accounts can be insured for up to $250,000 per bank - up to $100,000 in standard deposit accounts and $150,000 in an IRA. A couple with a joint account as well as individuals accounts could be insured for up to $350,000 per person: $100,000 in individually held accounts, $150,000 in an IRA, and $100,000 each in joint accounts.
NCUA Insurance - This is an identical pool of depositor insurance that covers credit unions. Limits are the same.
Covered and Uncovered Accounts:
The following types of accounts are covered by FDIC / NCUA insurance:
The following types of accounts ARE NOT covered by FDIC / NCUA insurance even if purchased through a commercial bank, savings & loan, or credit union:
PLEASE PLEASE PLEASE NOTE that a Money Market Deposit Account and a Money Market Fund are two different things and only the MMDA is coverd by deposit insurance. If you hold a Money Market account through your bank, I strongly encourage you to double check and determine which kind of account you own.
Is there any protection for stocks, bonds, mutual funds, and money market funds?
The Securites Investor Protection Corporation (SIPC) covers brokerage accounts in the event that a broker/deal fails and/or brokerage malfeasance occurs. However, please note that this IS NOT a version of the FDIC or NCUA.
When a brokerage fails, SIPC returns cash and assets held to their owners. In the case of malfeasance (illegal commingling of funds, fraud, theft, etc.), SIPC will cover up to $500,000 in brokerage assets.
SIPC does not insure the value of a given share of stock, only the existence of the share of stock. If a stock, mutual fund, money market, or bond loses value and/or defaults, that is NOT covered by SIPC. When it comes to investing, you pays your money, you takes your chances.
So I can lose out on a Money Market Account?
Easy answer: Maybe.
Long answer: If you have a money market account through a bank or credit union, check with them to see if it insured (an MMDA) or uninsured (a mutual fund). If it is an uninsured money market mutual fund, it might be covered. According to this NY Time article http://www.nytimes.com/2008/09/20/busine ss/20moneys.html the Treasury department is setting up a voluntary form of coverage that money market funds can choose to opt into. I haven't seen any other details on it, so I would take it with a grain of salt and confirm with the mutual fund itself.
I really hope this was helpful to people. There's really no reason to engage in a bank rush. At the same time, it is important to understand which part of your portfolio is insured and what isn't.
Please note that I compiled this information myself, using the FDIC and NCUA websites, the NY Times website, and my own understanding gathered through a couple of years of auditing and a couple of courses on finance and banking in business school. I double-checked most of it against wikipedia in order to get independent verification and make sure my numbers were current. I don't mind if you share this, but I'd appreciate a link back if you do.
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