Wisely managing your investments includes taking advantage of all possible protections. While you may already be aware of the Federal Deposit Insurance Corporation (FDIC) insurance for your bank-deposited funds, there are other ways to divide up your funds, lower your potential risk of loss and guarantee your money's safety. Read on for some ways to keep your money safe that you may want to consider in a bear market. (For background reading, see Are Your Bank Deposits Insured?)
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No. 1: Use a brokerage account to invest in brokered CDs.
By opening an account with a brokerage firm you can invest in brokered CDs. These are typically CDs with large denominations, which are issued by banks to brokerage firms for their customers' investments. Brokers "pool" investors' funds to purchase the CDs, enabling investors to get a share in larger CDs (with potentially higher interest rates) than what they would be able to access by investing on their own. Brokered CDs also allow investors to buy multiple CDs issued by different banks and qualify for FDIC coverage for each CD held.
Before investing in brokered CDs be sure that:
- You understand the terms and features of each CD you invest in
- The bank offering the CD is an FDIC-insured bank
- You don't invest in a CD offered by a bank where you already hold accounts (because you may inadvertently exceed the FDIC insured limit)
- You get documentation of your ownership (or partial ownership) of the CD from your broker (i.e. a copy of the CD's title) to ensure that you qualify as a depositor for the FDIC coverage. (To learn more, read Are Your Bank Deposits Insured?)
No. 2: Bank with a credit union that carries private excess share insurance.
Some credit unions that are members of the National Credit Union Association (NCUA) carry excess share insurance to provide members with additional coverage for their deposit accounts. (To read more about credit unions, see Tired Of Banks? Try A Credit Union and Choose To Beat The Bank.)
No. 3: Open an account with a DIF- or SIF-insured bank.
The Deposit Insurance Fund (DIF) is a private company headquartered in Massachusetts that provides insurance on deposit accounts for participating state-chartered savings banks. The Share Insurance Fund (SIF) is also a private fund that insures deposit accounts for Massachusetts-chartered co-operative banks. DIF and SIF member banks guarantee depositors' funds above the FDIC limit, regardless of both the FDIC limit and the amount of money held by the depositor. All deposit account types are guaranteed, including savings and checking accounts, CDs, money market and retirement deposit accounts. By providing both FDIC insurance and DIF or SIF insurance, member banks can guarantee that their depositors' funds are fully insured. Once you open a deposit account with a DIF or SIF member bank, there are no additional qualification tests to meet or forms to complete. In addition, you do not need to be a Massachusetts residents to do business with a DIF or SIF member bank.
No. 4: Invest in CDs with a CDARS network member institution.
When you invest at least $10,000 in a CD with a Certificate of Deposit Account Registry Service (CDARS) member bank, you can get up to $50 million in FDIC insurance. That's because a CDARS bank can take your large deposit, divide it up into smaller denominations and invest in multiple CDs across the network of member banks, ensuring that you qualify for FDIC insurance protection with each investment at each member bank. By using a CDARS network member bank, you can secure one interest rate on multiple CD investments and choose the maturities that best suit your investment goals. You pay an annual fee for the service and receive one statement summarizing all of your CD investments. (For related reading, see Are CDs Good Protection For The Bear Market?)
No. 5: Open an MMAX money market account.
The Institutional Deposits Corporation (IDC) offers the Money Market Account Xtra (MMAX) through its network of participating community banks nationwide to depositors looking for additional FDIC insurance. When you open an MMAX Account, your participating IDC bank uses its relationship with other participating IDC network members to guarantee FDIC insurance for your total account balance up to $5 million. You are limited to making six withdrawals from your MMAX account monthly.
No. 6: Research your broker and brokerage firm.
While you are responsible for making and approving decisions related to your investments, it's important to know your broker's, and his or her firm's, record to avoid becoming a potential victim of fraud. You should check into whether your broker is properly licensed and registered and that he or she has not been the subject of investor complaints or investigation. (To learn more, read Broker Gone Bad? What To Do If You Have A Complaint and Evaluating Your Broker.)
No. 7: Check for SIPC Protection.
Check to make sure your brokerage accounts are protected by the Securities Investor Protection Corporation (SIPC). SIPC guarantees up to $500,000 of your invested funds (up to $100,000 in cash) in the event that your stocks or securities are stolen by a dishonest broker or the firm holding your investments fails and your assets are found missing. (To learn more, read Are My Investments Insured Against Loss?)
No. 8: Know your investment time horizon.
Make sure that money you will need in the short-term is invested in low-risk vehicles such as CDs, T-bills and bonds or bond funds. The closer you are to the time when you will need to access your funds, the less risk you can afford to take that you might lose your principal. (For more insight, read Personalizing Risk Tolerance.)
No. 9: Keep good records of all your investment transactions.
If you are concerned that you may be a victim of fraud or if you are simply concerned that there may be inaccurate information on your investment accounts, you will need copies of your account activity to rectify the error(s), file a complaint or take legal action. (To learn more about personal responsibility in the investing process, read Are You A Good Client?)
Investing is never risk-free, but there are ways to reduce your risk and gain additional insurance coverage for your funds. Take the time to protect your funds and your peace of mind by checking out options available beyond FDIC bank deposit insurance.