Know the Rules to Keep Your Cash Safe

By Michelle Singletary
Thursday, October 9, 2008

Everywhere I go, I can feel the tension. People are naturally concerned about their investment portfolios, but increasingly they're also worried about the safety of their cash.

An elderly couple wrote to me and asked the following:

"Can you help us understand the limits on insurance for CDs, money-market accounts, and checking accounts in banks, savings and loans, and credit unions?"

With a number of major bank failures and takeovers, many people are wondering how much of their cash is protected.

On Friday, President Bush signed the Emergency Economic Stabilization Act of 2008. That law raised the amount of money in bank accounts that the Federal Deposit Insurance Corp. covers from $100,000 to $250,000 per depositor.

However, here's why you have to pay attention to all the fine details of the plans to "protect" our cash. The increase in the FDIC coverage is only temporary.

The basic FDIC deposit insurance limit will return to $100,000 after Dec. 31, 2009. The legislation did not increase coverage for retirement accounts, which continues to be $250,000.

If you have questions about FDIC coverage, go to On the site you will find EDIE, a calculator that will tell you how much of your cash is covered by the FDIC.

The new law also temporarily increased the insurance limit to $250,000 on accounts in federal credit unions and the majority of state-chartered credit unions.

Federal credit unions are regulated by the National Credit Union Administration, an independent federal agency. It operates and manages the National Credit Union Share Insurance Fund, which insures the deposits of nearly 89 million accounts in all federal credit unions and the overwhelming majority of state-chartered credit unions.

In nine states, 163 state-chartered credit unions offer coverage from American Share Insurance, a private insurance company. It insures up to $250,000 per account. If you have an account at a credit union with this insurance, it is not guaranteed by the federal government. However, Dennis R. Adams, president and chief executive of ASI, says depositors with its coverage should not be worried about their accounts. "We have a good track record and good financial statements," Adams said. "Credit unions are not the source of the problems today."

Before the FDIC limits were raised, the Treasury Department announced that it would provide protection for cash stashed in money-market mutual funds, which are offered by mutual fund companies. These funds are not the same as money-market accounts offered by banks, which are FDIC insured.

Under recently released details of this program, the federal government says it will guarantee that investors will receive $1 for each money-market fund share held as of close of business on Sept. 19.

The program only covers money-market funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940, are publicly offered, are registered with the Securities and Exchange Commission and maintain a stable share price of $1. This includes both taxable and non-taxable funds.

The guarantee will be triggered if a participating fund's net asset value falls below $0.995, commonly referred to as breaking the buck.

Ah, but here's another detail you need to know. The program will exist initially for three months, after which the Treasury secretary has the option to extend the program up to the close of business on Sept. 18, 2009.

Under what conditions might it be extended?

"We will examine market conditions," said Jennifer Zuccarelli, a Treasury spokeswoman.

If the program is extended, funds would have to renew their participation after each extension to maintain coverage. The program provides a guarantee on a fund-by-fund basis. In the event that a participating fund is liquidated, a guarantee payment should be made to investors in about 30 days, according to the Treasury Department. However, that payment promise is "subject to possible extensions at the discretion of the Treasury."

Zuccarelli said the Treasury is not releasing the names of fund companies that have enrolled in the program. I think they should.

"Investors need to contact their funds to see if they are participating," she said.

As of Friday, the department had collected $69 million in fees for the guarantee program, Zuccarelli said.

Personally, I've always diversified my cash holdings between various institutions. I've done that partly because I was raised by my grandmother, who lived through the Great Depression. I also spread my cash around because I don't like having all of my money at one financial institution.

For our regular household accounts, my husband and I use a bank with a huge ATM network because we travel a lot. We have a credit union account where we keep cash for large purchases or major repairs. The cash in the credit union is also designated as our "life happens" fund. We created this fund so as not to drain our emergency cash, which we reserve for dire situations. We use a money-market mutual fund account to hold some of our emergency cash.

With all these temporary government solutions, the word for the day is diversify. I just can't say that enough.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and at

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

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