Last Week’s Question of the Week: If you are born after 1960, what age is considered your FULL RETIREMENT AGE for Social Security purposes? ANSWER: After 1960, it is age 67.
HOST: Today’s topic revolves around the word ‘guarantees’, which I suppose people want?
KLAAS FINANCIAL: Yes, everyone wants the greatest return and basically no risk. And yes, everyone loves the word ‘guarantee’. So, we thought this was a great program to start talking about what types of guarantees are available for your money in banks, credit unions and investments.
Beginning with FDIC guarantees, what does this mean? What is the FDIC?
The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects you against the loss of your insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.
The FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.
FDIC deposit insurance covers the depositors of a failed FDIC-insured depository institution dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, up to at least $250,000. Prior to 2008, FDIC coverage was at $100,000 per depositor, but was permanently changed to $250,000 in 2010.
Depositors do not need to apply for FDIC insurance. Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank. If you want your funds insured by the FDIC, simply make sure you are placing your funds in a deposit account at an FDIC-insured bank and that your deposit does not exceed the insurance limit for that ownership category.
To determine if a bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, or call the FDIC at 877-275-3342.
HOST: What if I keep money in a Credit Union versus a bank? Any guarantees there?
KLAAS FINANCIAL: Actually, many of them do offer a guarantee.
The National Credit Union Share Insurance Fund is the federal fund created by Congress in 1970 to insure member’s deposits in federally insured credit unions. Administered by the National Credit Union Administration (NCUA).
Provides members with at least $250,000 of insurance at a federally insured credit union. The Share Insurance Fund is backed by the full faith and credit of the United States. Credit union members have never lost a penny of insured savings at a federally insured credit union.
Is your credit union a member? Federally insured credit unions are required to indicate their insured status in their advertising and to display the official NCUSIF insurance sign in their offices and branches. For a complete directory of federally insured credit unions, visit the NCUA’s agency website at ncua.gov.
The $250,000 FDIC and NCUA Share insurance limit applies per depositor, per insured bank, for each ownership category. The ownership category refers to how an individual’s or family’s accounts are titled at the insured bank or savings institution.
Most important thing to know: FDIC and NCUA Share insurance does not cover funds held in investments such as stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if they were purchased from an FDIC or NCUA insured bank or savings institution.
HOST: What about protection for my investments? Is that SIPC?
KLAAS FINANCIAL: Great Question!
The Securities Investor Protection Corporation (SIPC) had its origins in the difficult years of 1968-70, there was very high trading volume, followed by a very severe decline in stock prices. Hundreds of broker-dealers were merged, acquired or simply went out of business. Some were unable to meet their obligations to customers and went bankrupt. Public confidence in the U.S. securities markets was in jeopardy.
Congress passed the Securities Investor Protection Act of 1970 with the purpose to protect customers against certain types of loss resulting from broker-dealer failure and, thereby, to promote investor confidence in the nation’s securities markets.
So, if your brokerage firm goes out of business and 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 $250,000 limit for cash. When a SIPC member becomes insolvent, SIPC will ask a court to appoint a trustee to supervise the firm’s liquidation and to process investors’ claims.
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. And it does not provide protection for investment contracts not registered with the SEC.
From its creation by Congress in 1970 through December 2017, SIPC has advanced $2.8 billion towards the recovery of assets for an estimated 773,000 investors.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.
