Actually, it all began with a disturbing barbeque a week ago Sunday.
I was at my friend Joe’s place (another Joe), and he and another friend present know a thing or two about banking. They informed me, which was news to me, that not all money market accounts are covered by FDIC insurance. FDIC, as you probably know, is that little seal in the corner of practically every document your bank gives you. It means, basically, that in case of a run on the bank, or something akin to the Great Depression, your savings are guaranteed by the federal government up to $100,000.
Well, funny thing – I never really cared about that little FDIC bug. Until that barbeque. On a whim, I asked my bank-expert friends, whether I needed to be worried about losing my savings in the bank, should things really go south with the economy. They asked me if i had any of my money in a money market. I told them yeah, I think so. And they informed me that some money markets aren’t covered by FDIC insurance. What? Yes, it’s true.
Now, before everyone panics, some money markets ARE covered by federal insurance – I called my credit union, and my money market account is covered by another federal insurance program called NCUA that covers credit unions. So all is well. Well, kind of. I checked my PayPal money market, and while the money you keep in your general PayPal account, at least as far as I could tell, is covered by the FDIC (well, kind of – read on), any PayPal monies you hold in PayPal’s money market are NOT covered, again at least from what I was able to understand. Needless to say, my PayPal money left that money market last week.
And even that isn’t the whole story. According to PayPal’s Website, the money you have with them in a general non-money-market account is protected by the FDIC should the bank fail that they use to store your money. Your money may not, however, be protected if PayPal itself goes insolvent. Well, even that isn’t totally clear. PayPal says that they believe they’ve set things up in a way that your money “should” be free of claims from creditors should they go bankrupt. But that’s no guarantee. Today my PayPal money went into a real bank, ING Direct (Chris and several other friends recommended them – 3% interest on a savings account.) ING Direct protects your accounts up to $100,000. There are other online accounts people also recommend, and they pay a bit more, but I read that ING Direct is easy to us, and doesn’t make you go through hoops to get their rates.
Now back to my bank. Even though I have $100,000 in NCUA coverage, I found out that that’s $100,000 for all of my accounts combined – not $100,000 on each account. Now, I don’t generally have the delightful problem of having such sums in my bank accounts, but I’m keeping a good amount of savings on hand in order to buy my first place and put down a good down payment. That money, combined with closing costs, quarterly self-employed tax payments, money you save to put into retirement, and overall savings could push you over the FDIC/NCUA limit – at least at certain points during the year (right before paying your quarterly taxes, for instance, or right when a big client finally pays you in one lump sum). And anything over the limit isn’t insured should anything bad happen.
Now, my bankish friends tell me not to panic. Assuming your total exposure in one financial institution doesn’t exceed $100k, it’s no good if everyone goes yanking their money out of money markets, as that will hurt banks, and only push us closer to the brink. And in any case, I’m told, the current deal that is being negotiated (or hopefully will be negotiated again) in Congress will supposedly cover money markets, for the very reasons I’m discussing here (Chris also told me that lots of seniors have money in money markets, so politicians are making sure that money markets are covered by whatever they’re negotiating right now) – and actually, I’m finding some articles online suggesting the coverage may already be there – okay just got the answer from a friend:
Treasury provided insurance for 1 year going forward on funds that were already in money markets on that date. It does not apply to new funds moved into money markets after that date. FDIC continues to provide insurance on bank deposits up to $100,000.
Bottom line, it’s confusing as hell for regular Joes who didn’t major in econ.
I have to admit that I found it troubling, and a little depressing, that our country has gotten to the point under 8 years of Republican rule in the White House, and 12 of the last 14 years of Republican rule in the Congress, that for the first time in my life I had to call the bank in order to find out whether my money was safe (and some of it wasn’t).
We really have become a third-world country under Republican rule.