The past two weeks have seen some of the biggest names in finance brought to their knees. The bailout of AIG followed bankruptcy at Lehman Brothers, the sale of brokerage house Merrill Lynch and the nationalization of Fannie Mae and Freddie Mac, the quasi-public mortgage buyers. So with all that going on, what’s the safest place for my money?
How the recent failures, mergers and takeovers affect you
Q. Where is the safest place for my money right now?
A. The safest place for your money is in the bank. It’s earning interest, it’s FDIC- insured, and it’s accessible.
Q. How will the recent failure of Lehman Brothers affect me?
A. Unless you invested money with Lehman, you will not be affected. And if you did, Barclays Capital has announced that it plans to acquire the U.S. brokerage arm of Lehman, so all customers should be protected.
Even if Barclays had not agreed to acquire Lehman Brothers brokerage, customers would still get back all the securities that are registered in their name, and further protection would have been provided by the Securities Investor Protection Corp., which could have provided additional funds to satisfy each customer’s claims up to $500,000.
Of course, there will be economic factors that will affect us all, but Lehman is an investment bank, not a commercial bank.
Q. What’s the difference between an investment bank like Lehman and my bank?
A. Investment banks operate differently from commercial banks and thrift institutions. Their primary purpose is to facilitate the sale of stocks and bonds. These Wall Street firms operate as advisers and agents for companies that want to raise capital, often by issuing more stock or other securities.
Commercial banks and thrift institutions take deposits for checking and savings accounts from consumers and businesses. These deposits are insured by the FDIC for up to $100,000 per depositor per insured bank and up to $250,000 for retirement accounts. These banks lend this money to consumers and companies for autos, homes, business equipment, etc.
Q. Should I be worried about the health of my bank?
A. With 98 percent of the nation’s 8,500 banks considered “well capitalized,” the highest designation possible, the possibility of your bank being taken over by the FDIC is extremely remote. And if it did happen, you would continue to have uninterrupted access to your FDIC-insured deposits.
Q. Will I still be able to get a mortgage, credit card or other loan?
A. People with a good credit history will continue to have access to mortgage, credit-card and other types of loans. Appropriately, most banks are taking steps to limit risk in the current economic environment, so they have tightened lending standards.
For more information about the FDIC and the safety of bank deposits, go to myfdicinsurance.gov.
Source: American Bankers Association