The FDIC And Your Money

In these troubled economic times, everyone seems to be worried about their money. Even savings accounts have suffered pullouts by frightened investors. While hiding your money under your mattress or in a jar atop the fridge might seem like the only way to avoid any uncertainty, you should know that your savings accounts (among others) have some special protections in place.

The Federal Deposit Insurance Corporation, or FDIC, is responsible for insuring deposits at banks of all sizes across the country. If you have ever seen the "member FDIC" sign on the front of a bank, or placed on their website, you know that bank's deposits are covered. Specifically, the FDIC insures checking accounts, savings accounts, CDs, trust accounts, and IRAs. If your bank offers a money market deposit account, the FDIC will insure that also. Until recently, all these accounts were insured up to amounts of $100,000 ($250,000 for IRAs). With the passage of last week's bailout, the Emergency Economic Stabilization Act, that limit was raised to $250,000 for all insured account types -- but only until December 31, 2009. Also, that coverage is $250,000 per depositor per bank -- meaning if you want to keep more than $250,000 in one of the above named account types, you can open the same type of account at another bank, deposit your additional money, and have up to $250,000 of coverage at that bank.

So what exactly does the insurance cover? In the event that your bank should fail, the FDIC guarantees that you will get every cent of money back that you've deposited in a covered account. According to their website, since the agency's creation in 1933, no depositor has ever lost any money from an insured deposit. You can look through their website information for more details and answers to specific questions -- it's really easy to use.

What does this mean for you? Whatever happens to your bank, if it is an FDIC member, your money is in a covered account type and within the coverage limits, your cash will be safe. Don't break out that empty mayonnaise jar just yet.

Bailing Ourselves Out: A Final Note

One last thought about the bailout:

This grand scheme was engineered by the hardworking people in the U.S. government. While technically they are the employees of the voters and taxpayers, they seem to have a track record of looking out for the people with the most money, or the people who essentially own a piece of them (via campaign contributions, kickbacks, business investments, nepotism, etc.).

You could be one of those people.

No, I'm not suggesting that you go out and offer bribes to your Congressperson. (You'd probably have to stand in line for that and who has time?) I am suggesting that you go out and buy yourself a piece of the Federal Government.

Remember savings bonds? Our moms and dads, or our aunts and uncles, or our grandparents, would buy savings bonds for birthday or Christmas presents. You'd see this funny looking piece of paper that you couldn't play with or even touch. And Mom would lock it away in a drawer somewhere. Then a long time later, she'd take it out, go away with it and come back with money for you. You might get to spend some of it yourself if you were lucky -- more likely Mom would decide what you "needed" and spend it on that.

Well, savings bonds are alive and well and in the company of a host of other products that allow you to invest in the U.S. Government. Check out Treasury Direct, where you can purchase Treasury Bills (aka T-Bills), Bonds, Notes, Treasury Inflation-Protected Securities (aka TIPS) and yes, good old-fashioned savings bonds. Investments range in length from 4 weeks to 30 years, so you can find something to fit with any investment strategy.

Why invest in the U.S. Government if you aren't very fond of its work lately? Well, all this bailout money has to come from somewhere. To cover part of it, the U.S. treasury is planning to issue even more debt in the hope that it will be purchased by foreign countries who want to invest in the U.S.

That's right, foreign countries.

A lot of people get pretty riled up about foreign investment in America. They start talking about outsourcing and downsizing and NAFTA and jobs being taken away from Americans, etc, etc. But remember, the savings rate in this country is something like 0%. So the government is not counting on the citizenry to cover all the costs. I say, why let the Chinese have all the fun? Let's buy up as much Treasury debt as we can lay hands on and then call Henry Paulson in for a little sit-down.

Bailing Ourselves Out, Part 1: Savings

While it's virtually guaranteed that the bailout bill will pass in some form or other, there is no guarantee that it will fix, end or even moderate the current economic crisis. Rather than wait for the Treasury Secretary to throw more money at the problem, I came up with a few ideas that can be easily carried out by you, me or anyone that will address some of the basic causes of this mess.

Part 1: Start a Savings Account.

I've seen several finance articles recently that mentioned that the personal savings rate in America is at or near zero percent. I'm sure it's not true that no one in this country is saving any money, but it seems quite likely that we aren't saving enough. And one of the big factors in this credit crisis is liquidity shortages -- simply put, banks haven't had as much cash on hand as they needed.

As I mentioned yesterday, I have a savings account for emergencies. I've actually had the account at ING Direct for some time now, but only in the past year have I made a real effort to keep a balance.

I set an initial goal for myself to have a cushion of $1,000. It took me almost a year to reach that goal, including one or two occasions where I emptied the fund to cover a bill or buy myself something. But I kept at it and now have a $1,400 balance. Do I sleep better at night? Absolutely.

If, like me, it's hard for you to put money aside and keep your hands off it, ING or another internet-based bank might be your best choice because the money isn't immediately available. Transfers take two business days, so you can't impulse buy a designer purse or car stereo. And most let you make deposits in small amounts, so even if you can only do $10 a week, you can start to put something away for a proverbial rainy day. Shop around to see where you can get the best interest rates on savings accounts in your area. Online banks tend to offer better rates than brick-and-mortar banks, but look at all of them. And don't forget local credit unions, as they sometimes offer great options for their members. You can also compare accounts from several banks at websites like Bankrate.com.

I know a few people who keep credit cards "for emergencies." I did the same thing with my first credit card. I promised myself it was only for emergencies. Then it was only for necessities. Pretty soon, I was swiping it to cover dinner at Taco Bell. Credit cards can be very useful, but when it comes to real emergencies they are no substitute for the reassurance of cold hard cash.

Try to start saving something now. Set a goal of having at least the amount of one full paycheck in your emergency account. If you can put aside money today, when credit everywhere is tight and everyone is cutting back, you'll have an advantage, regardless of what Wall Street is doing. And while everyone else is running for the exits and charging stuff on their "emergency" credit cards, you can enjoy knowing that you're on more solid financial ground.