With the failure of Indymac Bank we should all be reminded to check that our money is adequately insured.
The FDIC (Federal Deposit Insurance Corporation) insures bank deposits of up to $100,000 and up to $250,000 for funds in retirement accounts such as an IRA. Brokerage products are not FDIC insured.
The SIPC (Securities Investors Protection Corporation) protects investors where a brokerage firm goes out of business and if that firm is a member of the Securities Investor Protection Corporation (SIPC), then your cash and securities held by the brokerage firm may be protected up to $500,000, including a $100,000 limit for cash. SIPC covers most types of securities, such as stocks, bonds, and mutual funds. But SIPC does not protect you against losses caused by a decline in the market value of your securities.
The solution is to spread one's money amongst different banks - in direct contradiction to what the banks and brokerages encourage investors to do. Instead, they try to have consumers consolidate their funds at one institution.
Comments(7)