Did you know that a money market account can actually lose money, as in the case of shares dropping below the standard $1 when they “broke the buck” in 2008? There really is no such thing as a 100 percent “safe” investment. Every investment carries some degree of risk, even if that risk is minuscule.
Even so, there are systems in place to ensure your money is protected in the event of a catastrophe or bank failure. Well, to a certain degree. Your money may not be as invulnerable as you believe it to be.
The following are a few ways you can determine whether your investments are subject to undue risk or are well-protected.
Federal Investment Protection for Deposit Accounts
FDIC: The Federal Deposit Insurance Corporation was created in 1933 in response to the numerous bank failures of the ’20s and ’30s. It insures consumer deposits in banks and thrift institutions. The insurance is not unlimited, however. The FDIC protects up to $250,000 per account holder (not account), per institution and that limit will drop to $100,000 in 2014.
If you are concerned about the safety of an investment, be sure your accounts at any particular institution are covered and meet the insurance guidelines. A word of warning, however: should your bank fail, it may take quite a long time to receive your funds. Also, only the principal balance of your account is protected, not the accrued interest.
NCUA: The National Credit Union Administration is the independent federal agency specifically tasked with chartering and supervising credit unions. They, too, insure up to $250,000 of a depositor’s funds through December 31, 2013. In fact, the NCUA Your Insured Funds booklet states, “not one penny of insured savings has ever been lost by a member of a federally insured credit union.”
Don’t believe the account security at your credit union is foolproof, though. There is one caveat to the above statement. Not all credit unions are federally insured. Depositing into a credit union account that is not insured by the NCUA runs you the risk of losing everything should it fail.
Securities Investor Protection Corporation
You may be wondering about the safety of other investment types, like mutual funds and stocks, that aren’t covered by the above organizations. The SIPC exists to protect such investments, though their coverage is limited as well. The SPIC cannot protect your investments against shifts in the market, investment losses or fraud.
They can, however, provide you with up to $500,000 if your brokerage firm bankrupts. This is only possible if you invest with a firm that is an SIPC member.
Secure Online Banking
Go Banking Rates has recommended online savings accounts as superior deposit accounts that can do much to increase interest rates as well as overall convenience. However, while technology presents new and improved financial opportunities for banks and consumers alike, banking over the internet has opened up a new world of threats.
A few tips for banking safely online include:
- Beware of fraudulent websites that deliberately use web addresses similar to actual financial institutions. Their intent is to lure you into mistaking them for the real thing and providing them personal information.
- Always bank over a secured connection. Look for an “https” or padlock symbol at the beginning of a web address to be sure.
- Use a firewall with anti-virus and anti-spyware programs on your computer.
- If you are concerned the security of your financial information has been compromised in any way, contact your bank immediately.
What if My Investments are Vulnerable?
If you feel your investments may be in danger, review the guidelines for ensuring their protection and take any necessary steps to meet them:
- Only open deposit accounts with banks or credit unions insured by either the FDIC or NCUA. You can look up any bank or credit union to find out if they are.
- Purchase securities through “Member SIPC” brokerages
- Never access personal financial information over an unsecured internet connection
- Understand that you always take on some risk when investing — there is no investment completely impervious to loss.
