FDIC Insurance: The Basics
By Toma Franklin, Staff Writer
short for the Federal Deposit Insurance Corporation -- is an independent agency of the United States government. The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.
Only banks and savings institutions can offer insurance through the Federal Deposit Insurance Corp. If you purchase an FDIC-insured CD through a stock broker, it should show up on your statement as a CD with the name of the bank. CD’s purchased through stock brokers are "assets held outside the brokerage firm" and it is important to make certain the FDIC guarantee is in place. The individual insurance limit through FDIC is $250,000 plus $250,000 for retirement accounts. You may qualify for more than $250,000 in coverage at one insured bank if you own deposit accounts in different ownership categories. Historically, insured funds are available to depositors within just a few days after the closing of an insured bank. Since the start of the FDIC in 1933, no depositor has ever lost a penny of insured deposits.
What is Not Insured by the FDIC:
• Mutual funds
• Government securities
• Variable annuities
• Individual stocks
• Contents of a safe deposit box
• Robberies and other thefts (covered by the bank’s blanket bond).
Credit unions offer insurance similar to FDIC insurance through the National Credit Union Administration which is a government agency. Limits are the same as for FDIC insurance. All federally chartered credit unions are insured, but state-chartered credit unions may or may not be so it is best to always check The shares in your credit union are insured by the National Credit Union Share Insurance Fund (NCUSIF), which is backed by the full faith and credit of the United States Government. Estab¬lished by Congress in 1970 to insure member share accounts at federally insured credit unions, the NCUSIF is managed by NCUA under the di¬rection of the three-person NCUA Board. Your share insurance is similar to the deposit insur¬ance protection offered by the Federal Deposit Insurance Corporation (FDIC). Not one penny of insured savings has ever been lost by a member of a federally insured credit union.
Securities Investor Protection Corp.:
SIPC: This insurance protects up to $500,000 per customer (including $100,000 in cash) for missing securities if a brokerage firm is liquidated. However, it does not protect against fraudulent investments. Fraudulent investments would need to be settled in a civil action (courts and lawyers) From the time Congress created it in 1970 through December 2005, the Securities Investor Protection Corporation advanced $585 million in order to make possible the recovery of $14.2 billion in assets for an estimated 624,000 investors. Although not every investor is protected by SIPC, the Securities Investor Protection Corporation estimates that no fewer than 99 percent of persons who are eligible have been made whole in the failed brokerage firm cases that it has handled to date.
Insurance State Guarantee Funds:
(life and annuity companies) each state has some level of guarantee in the event an insurance company were to be unable to fulfill their contractual promises. These underlying guarantees can be as high as $500,000 per person so the need to understand your state of residence’s protection is important. There are exceptions to this protection and it is very important to know that each state can have different guarantees. Please consult your state department of insurance for specific details.
Some bonds are backed by the full faith and credit of the issuing government body, while others are backed by revenues from specific sources. Creditworthiness can vary from one issuer to another so it is important to always know your bond issuers credit rating. Some issuers are a lot more creditworthy than others, so check the bond rating.
Points to help you protect yourself:
• Never invest in a product you don't understand.
• Be sure you have enough information before making an investment. Ask questions until you are satisfied.
• Investments ALWAYS entail some degree of risk: understand the risks.
• Be sure your sales representative knows your financial objectives and risk tolerance.
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor or other licensed professional.??