Where did the confidence go? Even after the government stepped in and bailed out our largest insurer, the stock market still tanked as skittish investors failed to be soothed by the intervention. The action could give anyone whiplash – not just traders – but this is when you’ve got to be confident and know where your money is.

On Wednesday’s Special Report, Carmen and our contributors spoke to viewers with some of the same questions on the minds of many Americans as they worry about the safety of their money.

Q. I have a $400K annuity with AIG. Is my money safe?

Yes. According to Sandy Praeger, President of the National Association of Insurance Commissioners, annuity products – investments wrapped in life insurance – held by AIG are held by subsidiaries that are regulated on the state level, and therefore not involved in the federal bailout of the AIG holding company. The web site of the NAIC has a Consumer Information section that will tell you the status of insurance companies that are regulated by the states.

Q. With the stock market down, is this a good time to invest in index funds or ETFs?

Carmen has recommended index funds in the past as part of a larger portfolio. Just make sure not too much money is in one fund, like financial services. When it comes to investing in funds, the broader the better. Diversity is your friend, especially now.

Q. I was an employee with Lehman Brothers for 20 years and while I was there I put money into an annuity backed by Lehman. Now that Lehman has filed for bankruptcy, what happens to my annuity?

It will be safe. Your annuity is owned by someone else, Lehman, the brokerage, is just the middle man. Carmen suggests finding out who the annuity was purchased from, but know that it is backed by solvency and regulated at the state level, just like annuities held by AIG. The FDIC and SIPC do not guarantee fixed annuities but they have downside guarantees so you cannot lose what you originally put in. Variable annuities, however, are investment holdings and can rise and fall with the market and will not be insured if the market falls.

Q. I have 2 IRA accounts, one at BB&T for $250,000 and one at Wachovia for $250,000. Am I insured by the FDIC for $500,000 since they are in two different accounts?

Yes. IRAs are insured by the FDIC up to $250,000 per account per bank. If you have separate accounts in separate banks, the limit applies to each one individually. Spreading your IRAs around different FDIC-insured banks is the right thing to do.

Q. If you have money in an investment fund that is diversified and part is in cash, is the cash part of the investment protected? The broker/dealer says it is, but how does one know for certain?

You can have cash as an investment holding with a broker and it is treated as its own holding. Stephen Harbeck, President of the Securities Investor Protection Corp., explains that the SIPC is there to protect missing assets, whether in the form of securities or cash. Brokerages report on a weekly basis to the Financial Industry regulatory Authority (FINRA) to ensure they have properly segregated its customers’ securities from their cash holdings. Unlike banks, brokerages cannot use customers’ assets in their own businesses. The SIPC can advance up to $50,000 for securities and $100,000 for cash.

Q. Are money market accounts and other accounts managed by investment advisory firms insured? And to what extent?

This is only the second time in history that money market accounts have lost value, or “broken the buck,” meaning the value of a share is now less than $1. They’re touted as being as safe as cash, but now one major money market fund is paying out 97 cents on the dollar. If the account is held by a bank, it is insured by the FDIC. If it is held by a brokerage, it is insured by the SIPC. However, the performance of the money market is not insured, so if you’re worried, Carmen recommends moving your money into a high-yield savings account so that you don’t have to worry about losing anything.

Q. I have an annuity with AIG. The annuity was set up by my mother while she was living and the proceeds are distributed to her children monthly. How will I be affected by the AIG meltdown? Is that money gone?

Sandy Praeger of the NAIC explains that if the annuity is set up through an AIG subsidiary, it is and will remain financially solvent and you will continue to receive your monthly payments. One note: as the AIG holding company attempts to pay back the massive bridge loan it receieved from the Fed, it might attempt to sell of its subsidiaries to raise funds. Worst case scenario: the check may end up coming from a different company at some point in the future, but it will not disappear.

Q. My husband has $500K in his retirement account and is still working and actively contributing to this account with the same employer. Out of that money, only $100,000 is covered by the FDIC. Can he lose $400,000 of his retirement even though he is still contributing to it?

The Employee Benefit Protection Act of 2005 protects you. The law was passed in the wake of the Enron collapse and states that the employer has the responsibility to ensure its employees’ benefits remain intact even in the case of the bankruptcy of the company. The backup plan, according to Stephen Harbeck, is that the SIPC will insure up to $500,000. If you are losing money on a retirement account, and you are edging closer to retiring, Carmen suggests finding out what stocks or funds are doing most poorly and diversifying.

Q. Should I be more worried about money deposited in an internet bank (i.e. Everbank) than in a regular or conventional bank?

Most web banks are FDIC insured, just like their brick-and-mortar counterparts. Marc Hedlund of Wesabe.com, points out that Netbank failed last year but was bought out by ING Direct and its customers did not lose any funds, although some reported they had to go a “couple weeks” without access while the transition took place.

Judging by the turmoil in the market and amplified by the tone and content of the questions we’re getting, there is a systemic lack of confidence in our financial system right now. That is why it is more important than ever to educate yourself and prepare so you’re secure no matter what comes next. As Carmen said, it’s your system to own.

Own it.

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