Where Money Is Safe – And Insured – The New Rules
With the turmoil affecting the markets over the past several weeks, investors are looking for protection. The fact was driven home to me recently when an Executrix for an estate we handle decided to divide the estate account among three banks. The action happened to be unnecessary in that case but her concern was understandable.
Consumers’ distress can be allayed somewhat by knowing just what is insured and for how much. New federal rules also extend depositor protection.
Here is a summary.
What Is Covered By FDIC Deposit Insurance? The FDIC or Federal Deposit Insurance Corporation is an independent agency of the United States government that protects against the loss of insured deposits if an FDIC-insured bank or association fails. FDIC deposit insurance is backed by the full faith and credit of the United States government. As the FDIC notes on its website, www.fdic.gov, since the agency was established, no depositor has ever lost a penny of funds insured by it. Even if a member bank fails, the government insures the deposits up to a given amount.
This amount has recently increased. Effective October 3, 2008 and continuing through December 31, 2009, depositors are insured now for $250,000 per owner per account. The prior insured figure was $100,000 per owner per account. The per owner per account distinction is important. If there is a jointly titled account, for instance, with two owners, the account is insured for a total of $500,000. Trust accounts may be insured for $250,000 per owner per beneficiary which extends the protection beyond the $250,000 for trusts and estates with more than one beneficiary.
If you want to confirm that your bank is FDIC insured, you may use the Bank Find tool at www.FDIC.gov.
FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CD’s). FDIC insurance does not cover some financial products and services that insured banks may offer such as stocks, bonds, mutual fund shares, annuities or municipal securities. Depositors do not need to apply for FDIC insurance. Coverage is automatic.
Do Accounts With Credit Unions Receive Insurance? Credit Unions also have insurance but under a different system. The NCUA or National Credit
Union Administration, an independent federal government agency, charters and supervises federal credit unions and insures accounts in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United State government. Properly established member accounts are insured up to $250,000 per individual account holder per federally insured credit union. NCUSIF insures savings, share draft (checking) accounts, money market accounts and CD’S. It does not insure stocks, bonds, municipal bonds or other securities including money market mutual funds and mutual funds invested in stocks, bonds and securities, annuities or insurance products. It also does not insure U.S. Treasure bills, bonds, or notes but these are backed by the full faith and credit of the U.S. Government.
Is There Protection for Money Market Mutual Funds? Money market mutual funds have traditionally been regarded as safe places to stash cash while receiving higher yields than regular bank checking accounts.
Recently the U.S. Treasury established a temporary insurance policy to cover assets that were in money market mutual funds held by investment companies as of September 19, 2008. The insurance was to provide an added layer of protection during this unsettling time. Vanguard, Fidelity, T. Rowe Price and several other major fund companies signed up to participate.
Is There Any Good News To Report? There is some good news. The Alternative Minimum Tax relief provision that is typically passed each year to provide relief to middle income people caught in a law originally passed to snag high income taxpayers who avoided taxes through deductions was again extended.
Some tax breaks, including a deduction of up to $4,000 for college tuition and fees and another for seniors who use their RMD from their IRA’s for charitable contributions, received extensions through the end of 2009. Some business tax breaks were extended.
Of importance considering the current mortgage market is extension of a tax law provision allowing people to exclude from income up to $2 million of mortgage debt forgiven on a primary home. Without this, if a lender “forgave” a mortgage debt on the home, the distressed homeowner would have to pay taxes on the amount forgiven. That relief, originally expected to expire at the end of 2009 has been extended through 2012.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.