We’re all becoming a little used to watching our investments tick downwards. It’s disheartening at best, but you can take a few steps to protect yourself. You can’t change the value of your investments, but you can reassure yourself that you’ve done everything you can to protect yourself from a problematic market. The three steps below can help ease your mind — at least a little — about what’s happening with most investments.

1. Know Your Rights: Depending on where your savings account is, there might some changes going on beyond the name on the building. However, making sure you’re aware of just what the bank is allowed to do with your money — and what rights you have — can help ensure that a sudden change won’t put your cash accounts in danger. You should also understand the protection the FDIC offers you for savings accounts, CDs and other cash accounts. If you’re not quite sure what the FDIC does, you can read up on it on the FDIC website: I’d recommend reading the bank closing information for Silver State Bank or another failed bank, rather than the various ‘About the FDIC’ pages. You’ll get an example of exactly what happens, rather than wading through hypotheticals. The FDIC actually protects more than you might think, including IRAs and money market accounts.
2. Minimize Movement: Unless you are truly not confident in an investment’s ability to ride out the recession intact, try to minimize moving your money around. That’s actually a fast way to lose money — with all the fees that can be associated with a move, you can wind up losing far more than you might expect. For most investments, the current downward trend is nowhere near permanent. Once the economy becomes stronger, stocks and other investments will regain value. It’s a waiting game. There are a few exceptions, of course. If you do need your money now, it’s reasonable to pull it out of an investment, although it’s worth discussing the matter with a financial planner in order to protect your investment as much as possible.
3. Save and Diversify: While it can be harder to sock away money during a recession, creating a bigger cushion of savings can reduce your worries about the current financial situation. It may seem counterintuitive to invest any of your savings during a recession, but it’s worthwhile to do so as long as you invest conservatively. CDs and other insured investment vehicles can keep your money safe while the market evens out. Do your research before investing anything, of course, and diversify where you place your savings to increase their safety as much as possible.

There is no perfect way to protect your investments, unfortunately. Even putting all of your money in a mattress at home is risky — and that money is certainly uninsured. However, you can ease your mind by taking the steps available to you: if you’ve done everything you can to protect your investments, you can rest a little easier when it comes to money matters.

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If you’ve been reading the news lately, you may have heard of the recent failure of Indymac Bank. After facing a liquidity crisis by making too many high risk loans, Indymac has been officially taken over by the FDIC. This is the second largest bank failure in United States history, and it is expected that the FDIC will have to disburse 4 to 8 billion dollars to the former customers of Indymac, or 10% of the total FDIC fund. The past few days have seen lines of angry people trying to withdraw their funds from the failed bank, but what many of them don’t know is they may not walk out with all their money.

What Is the FDIC?
Most people aren’t fully aware of exactly what the FDIC is, much less what their rights are under it. Most know that a bank with an FDIC seal is a good thing, but not why. The Federal Deposit Insurance Corporation was created after the stock market crash and massive bank failures of the Great Depression. During that time, people were simply out of luck if a bank failed. Once the bank closed, the customers usually were broke (hence the tendency of many of our grandparents to stuff money under the mattress). To counteract the devastating effect this had on the rest of the country, the government created a corporation to insure depositors money.

Account holders are now insured for up to $100,000 on regular deposit accounts, such as checking, savings, or CDs (A recent change to law in 2005 changed the coverage of IRAs from the standard $100,000 to $250,000). Because the FDIC has taken over Indymac, each customer is only allowed to withdraw up to that $100,000 limit. Customers who had more than that in their accounts will have to sue Indymac for the balance, which could take years and never result in a payout. So does this mean you’re screwed if you have more than $100,000 in your bank? Not necessarily, if you know how the system works.

The Breakdown
The FDIC has a few rules that, once you know how they work, can cover every penny you have.

- Each depositor is covered for up to $100,000 for accounts held in their name at a financial institution that is a member of the FDIC.
- If the depositor has accounts at another institution in addition to the first, the depositor is covered for $100,000 at the second institution as well. Therefore the depositor will have $200,000 of coverage between the two banks. Have accounts at eight banks? You have $800,000 of coverage, as long as you don’t exceed the $100,000 limit at any one bank.
- Accounts held in a different title are considered separate. Joint accounts, trusts, or beneficiary accounts are all considered to have their own $100,000 coverage.

The rules get a little more complicated the more spread out the money gets, but these are the basics that would apply to most people. Remember that banks aren’t guaranteed to be around forever, so you should take as many precautions as you can to protect your hard earned cash.

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