Today, with all of the news that has been reported on interest rates, the economy, commercial and investment bank failures, etc., it's helpful to know about FDIC insurance for commercial banks and SIPC insurance for investment, or stock brokerage accounts.
FDIC insurance protects your assets in a commercial bank account (savings or checking), while SIPC insurance, on the other hand, protects your assets held in a stock brokerage account. These types of insurances operate very differently. For your own peace of mind, you should become acquainted with how they work and how they protect you and the safety of your money and stock-market-type investments.
-. If your FDIC-insured bank was to fail, here are some facts you should know:
The basic FDIC insurance bank account coverage amount is $250,000 per account holder per each insured bank for deposit accounts and $250,000 for certain retirement accounts deposited at an insured bank. The limits include both principal and accrued interest.
Previously, FDIC coverage on deposit accounts was $100,000, but this amount was increased to $250,000 on Oct. 3, 2008. The FDIC limits are currently scheduled to revert to $100,000 on Jan. 1, 2014.
The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, municipal securities and money market funds, even if they were bought from an insured bank.
The FDIC insurance limit applies to each account holder at each bank. Here is how the FDIC defines coverage for different account holders by some common ownership types:
Single accounts are deposit accounts owned by one person. FDIC insurance covers up to $250,000 per owner for all single accounts at each bank.
Joint accounts are deposit accounts owned by two or more people. FDIC insurance covers up to $250,000 per owner for all joint accounts at each bank.
Certain retirement accounts, such as IRAs and self-directed defined contribution plans, are also covered by FDIC insurance up to $250,000 for all deposits in such retirement accounts at each bank.
The Securities Investor Protection Corporation, or SIPC, is a nonprofit membership corporation created by federal statute in 1970. Unlike FDIC insurance, SIPC does not provide blanket coverage. Instead, SIPC protects customers of SIPC-member broker-dealers if that firm was to fail financially. SIPC coverage is up to $500,000 per customer for all accounts at the same institution, including a maximum of $100,000 for any cash sitting in a given account and not being invested. Many brokerage firms have added additional private insurance
per account in amounts as high as $10 million or more.Investors should know that SIPC does not insure the value of the assets held in your brokerage account. Why? Because market losses are a normal part of the risk of investing. That is why SIPC does not protect you when the value of your investments falls or rises. But all of the investment assets held in your brokerage account are protected and insured if that brokerage firm were to fail.
In other words, if your account held 500 shares of Exxon, 1,000 shares of AT&T, and a $100,000 face amount of a tax-free State of Maryland bond, for example, those assets would still be held for you and in your name and safe under SIPC coverage if that brokerage firm was to fail.
By Paul Rendine, a financial adviser with more than 30 years of experience in the field. He may be reached at quoteman3@ aol.com
source : www.delmarvanow.com
