Is Your Money Secure (To Be Published)

Here's my first published article (coming out January 2009). It's for a small insurance magazine and is distributed to it's policy holders on a quarterly basis.

Is Your Money Secure?
Important facts to know about your bank, broker and mortgage company.

These are some scary times in the world’s financial markets. With the failure of so many banks and mortgage companies, we’ve been left questioning the safety of our money and our homes. Even if your household hasn’t been affected directly, the fact that our government passed a $700 billion economic bailout recently is enough to send shivers down most of our spines. So what’s next? Here are the answers to some of the most common questions as it relates to the security of your finances. Hopefully this will set your mind at ease a little when it comes to your money that you’ve worked so hard for.

BANKS

What if my bank is on the brink of bankruptcy? Good news! As long as your financial institution is FDIC insured you have nothing to worry about. The FDIC guarantee is ironclad, so regardless of your banks financial standing your money is safe. Keep in mind that funds are only covered up to $100,000 for the total of all your accounts within one company. If the amount of cash exceeds $100,000, move the excess to a different FDIC insured bank.

Are all my accounts safe? All account types are covered, whether it’s a credit union, checking, savings, retirement or money market as long as your banking institution is insured by the FDIC. For IRA’s and other types of retirement accounts all deposits in these types of accounts are added together and insured up to $250,000 per person. For example, if you have both a regular and Roth IRA totaling $350,000 you are guaranteed up to $250,000 at that bank.

What about my money market account? Your money market account is covered but will be combined with all other accounts in your name. Funds that you keep in a money-market mutual find are now insured too. Thanks to the US Treasury, a one-year temporary guaranty program for taxable and tax-free money market funds is now in effect using a fund that was created during the Depression. Keep in mind that a fee must be paid to participate. By paying this fee guarantees you that your share price remains a constant $1.

How can I be sure all my funds are covered? If you are still anxious about your money you can check the FDIC web site (http://www.fdic.gov/) or the National Credit Union Administration’s site (http://www.ncua.gov/). Both sites have calculators that allow you to plug in all your accounts and the amounts deposited so you can find out whether your money is insured.

BROKERS
What happens if my broker goes belly up? You can breathe a sigh of relief since brokerage firms are required to follow very strict rules when it comes to a client’s money verses their own. So for example, even if your brokerage firm or broker goes under, your accounts should remain intact. How does this work? Stocks, bonds and mutual funds are all physically held by an independent institution not the broker or the firm.

What happens if my firm mishandles my assets? Nearly every firm is registered with the Securities Investor Protection Corporation (SIPC). The SIPC was created specifically to restore funds to investors. If your broker fails, the SIPC will first try to transfer your securities to another firm. If that doesn’t work, then they will work to rebuild portfolios, even buying new stocks or bonds to make up for missing shares. If the investments aren’t available, SIPC will give you cash based on their value when the brokerage failed.

How much am I covered if my broker goes under? The SIPC covers up to $500,000 per account and has a $100,000 limit on cash. If you have more than $500,000 at one brokerage the limit will apply only to the maximum amount of its own money SIPC will spend to make up for any missing securities, not the total amount you get back. A fact to rest easy over is that over the history of the SIPC only 349 people have not received the full value of their shares back.

Once the SIPC takes over how do I get my money? Be ready to wait between one week and as long as two to three months to gain access to your money once the SIPC takes over. Understandably, it takes them some time to sort things out especially when the broker was involved in fraud or kept poor records. Keep in mind that the SIPC does not protect you against market losses while your account is in transition between your broker and the SIPC

MORTGAGE LENDERS

What happens if my mortgage company shuts down? Continue paying your mortgage – this is your lenders problem not yours. During the bankruptcy process your loan will be transferred to a new owner or “servicer” and you will be notified by letter once the change occurs. If you mail your payment to the old lender by mistake, don’t worry you won’t owe a late fee or be penalized if you are within the federally mandated 60-day grace period after the transfer takes place. It’s wise during this period to keep careful records of your payments and any correspondence.

What about my escrow and taxes? This is your money, held in trust and will not be part of your lender’s bankruptcy assets. Once the new servicer takes your loan over they will resume making the tax insurance payments from your account. During the transfer period and for some time afterwards, be sure to carefully check over your monthly statements. Double check your escrow account, if anything seems fishy call your lender, insurance company or your local property tax office to be sure payments are being made and are current.