Where can investors feel comfortable with their money?  One place is in their bank account; but, is that money safe?  In calmer times, most people kept the bulk of their retirement savings in investments that have the potential to earn higher returns than CDs; however, predictability is what many investors want today.  They can usually find that predictability in CDs and money market accounts, as they know there will probably not be a great deal of fluctuation. 

FDIC (Federal Deposit Insurance Corporation) insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs).  Up until last month, FDIC insurance covered these accounts up to $100,000.  They have now raised the limit to cover up to $250,000 per account.  However, it is important to know what is not covered by FDIC protection.

FDIC insurance applies to deposits, not investments.  Only the portion of your retirement income in bank deposits such as CDs and money market savings accounts are covered by FDIC insurance.  FDIC insurance does not apply to money invested in stock, bonds, mutual funds, life insurance or annuities, even if they are offered by a FDIC-insured bank.  Investments such as these are covered under SIPC (Securities Investors Protection Corporation) insurance.

SIPC insurance is for investment accounts.  It covers securities held by a customer at a financial institution.  Investments that are eligible for SIPC protection are stocks, bonds and money market accounts (not to be confused with money market deposit accounts, which are covered under FDIC).  Among the investments that are ineligible for SIPC protection are commodities futures contracts and currency, as well as investment contracts, such as limited partnerships and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under The Securities Act of 1933.  Remember that SIPC does not work the same way as FDIC in terms of blanket protection of losses.  SIPC only covers certain investments in brokerage accounts; it does not insure against market losses. 

When a brokerage firm fails, owing customers cash and securities that are missing from customer accounts, SIPC usually asks the Federal Court to appoint a trustee to liquidate the firm and protect its customers.  With smaller brokerage firm failures, SIPC sometimes deals directly with customers.

So SIPC covers certain investments in brokerage accounts and FDIC covers other types of accounts.  Unfortunately, this can be very confusing for many individuals.  They don’t distinguish between FDIC and SIPC coverage.  FDIC insurance through a bank covers both non-IRA and IRA money up to $250,000.  However, it is only money market deposit accounts and CD investments that are covered, not life insurance, stocks, bonds, mutual funds or annuities.  That is where SIPC comes in, but even SIPC doesn’t cover life insurance, or annuities.  Those are backed by their own respective insurance companies. 

It is very important for the investor to meet with their financial advisor and bank official to make sure they know the differences in the protection they are receiving.

You can visit Bob’s website at www.moneytalk.org or contact his office, Delta Investment Services, Inc., at (636) 532-0484 or 1-800-969-6878.