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?
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.
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