The news of the past couple of weeks has been unsettling for many people, with Lehman Brothers filing for bankruptcy, Merrill Lynch being sold, and AIG getting a government bailout. Even if you don't have money in these institutions it can make you wonder how safe your money is. In the midst of all the turmoil, understanding the many safeguards that are in place can go a long way toward easing your concerns.
Matt's View
One of the most important indicators that your bank account money is safe is that the Federal Deposit Insurance Corporation (FDIC) insures it. Look for the FDIC symbol on your bank's web site or search for your bank on the FDIC's web site
. As noted on its site
, the FDIC insures up to $100,000 per depositor per insured bank, which includes the total of money you have in checking, savings, and money market accounts, and certificates of deposit. In the case of joint accounts, each co-owner has $100,000 of coverage. Money held in one or more Individual Retirement Accounts at a bank is insured for a total of up to $250,000. If you have significant sums in a bank and want to see how much of it is insured, use the FDIC's Electronic Deposit Insurance Estimator
.
If you have money in a credit union, make sure it is insured by the National Credit Union Share Insurance Fund ( NCUSIF
) or by American Share Insurance ( ASI
). The NCUSIF covers up to $100,000 held by an individual across checking, savings, or money market accounts or CDs (a two-person joint account is insured at $100,000 per person), or $250,000 in IRAs. ASI covers up to $250,000 for each account held by an ASI-insured credit union member.
If you have money at a brokerage house, look to see if the Securities Investor Protection Corporation (SIPC) protects it. The SIPC does not protect against investment losses, but it does protect up to $500,000 in brokerage accounts per investor in cases of fraud or the failure of a brokerage house. If you don't see SIPC on your firm's web site, search the SIPC's member database
.
For more details on the various protections in place at banks, credit unions, brokerage houses, and mortgage lenders, see this article
from Kiplinger.com.
Whereas money market accounts are a type of insured savings account offered by banks and credit unions, money market funds are mutual funds, which until last week were not insured against investment loss. Historically, money market funds have been widely viewed as extremely safe. However, within the mix of bad news last week came word that for only the second time in history a money market fund's share price fell below one dollar. The Reserve Primary Fund got into trouble because of investments in Lehman Brothers securities. Then came news that Putnam Investments would be shutting down one of its institutional investor money market funds because of rapid withdrawals. At the end of the week the Treasury Department announced a program that will insure against investment losses the holdings of any money market fund that pays to participate in the program. The program has been established for one year.
Matt's View
Money market funds have been a popular place to keep emergency fund money or money for a near-term purchase. Such funds offer safety (well, historically that's been true), ease of access, and usually better interest rates than bank savings accounts. However, even within such a conservative investment vehicle the interest rates offered by different funds vary, which has tempted some savers to choose funds based strictly on the rate offered. A Time magazine article noted that the Primary Fund was a high yielding money market fund because it held relatively riskier investments. A word to the wise: when choosing where to put your emergency fund or short-term-goal money, the risk of chasing an extra point of interest may outweigh the rewards.
Much of the financial crisis gripping our country can be blamed on bad mortgages. Some say the mortgage mess is due to a lack of regulation or corporate oversight. Others say borrowers simply bit off more than they could chew. While the blame game intensifies, the Associated Press just reported on new Census Bureau data showing that 15 percent of all homeowners are spending half of their income or more on housing costs. Those costs include mortgage principle and interest, taxes, insurance, and utilities.
Matt's View
When writing Money, Purpose, Joy
and its accompanying workbook
, I spent a lot of time crunching numbers to develop sample cash flow plans for four different sized households across nine different incomes. All that number crunching left me with one very clear conclusion (not to mention one big headache!): if we are to give generously, save sufficiently, and live with financial breathing space, it's essential that we have no consumer debt (no credit card balances carried from month to month and no vehicle payments) and spend no more than 25 percent of our monthly gross income on the combination of our mortgage principle and interest, taxes, and insurance. These are countercultural moves, to be sure, but they are foundational elements of a financial plan that will hold up in good times and in bad times.
Not surprisingly, a growing number of people are feeling some economic anxiety. According to Yakelovich, a market research firm, the percentage of Americans feeling high or severe financial anxiety has jumped from 33 percent in January of this year to 61 percent in June. Of course, that 61 percent figure was tallied well before the most recent stomach-churning news from Wall Street.
Matt's View
At times like this it's especially important to keep in mind the distinction between what we can control and what we cannot control. We can't control what's happening in the financial markets. However, through the use of a budget
, we can control what's happening in our household, such as how much we're giving, saving, and spending. Some of the advice being bandied about right now includes, "Cut expenses!" and even, "Stop spending" (as if that's possible). I say learn to spend more effectively. It's the difference between fear-based frugality and smart money management. A budget is the tool you need to spend with wisdom and peace of mind.
This is also an especially important time to know and fully trust in the promises of Scripture. The Bible tells us to turn to God
in our worries; and it assures us that God knows our needs and promises to provide for us
. If you find yourself checking the business headlines or your investment holdings with great regularity, check in with God's Word just as regularly. In our small group we just started to study the book of Proverbs. We read the other night that we are to seek God's wisdom with vigor - to "look for it as for silver and search for it as for hidden treasure." In doing so, it says, we will "find the knowledge of God" (Proverbs 2:4-5). Now more than ever we need the comfort and guidance of God's timeless Truths.
