Got questions about your money? We've got answers

The Dallas Morning News (MCT) - The turmoil in the financial markets has triggered a slew of questions from consumers worried about the safety of their money in financial services and investment companies.

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Here are some answers to the most common questions:

Q. Is your brokerage account safe?

A. There are multiple layers of protection for brokerage accounts.

Brokerage firms are required to meet minimum net capital requirements to reduce the likelihood of insolvency, and to be members of the Securities Investor Protection Corp., or SIPC, which insures customer securities accounts up to $500,000.

Although Congress created it in 1970, SIPC is not a government agency and doesn't work the same as the Federal Deposit Insurance Corp., which insures bank deposits and is a government agency.

SIPC is a nonprofit, membership corporation funded by its member securities firms. It doesn't offer investors the same blanket protection that the FDIC provides to bank depositors.

When a brokerage is closed because of bankruptcy or other financial difficulties and customer assets are missing, SIPC works to return customers' cash, stock and other securities.

If any assets are missing, a reserve fund maintained by SIPC meets each investor's remaining claims up to $500,000 per customer, including a maximum of $100,000 for cash claims.

SIPC doesn't cover investment losses due to market fluctuations, and it doesn't protect investors who are sold worthless stocks and other securities.

Brokerage firms also must keep their customers' securities and cash separate from their own so that even if the firm fails, its customers' assets will be safe.

In the case of Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy protection, the firm's U.S. regulated broker-dealer subsidiaries, Lehman Brothers Inc. and Neuberger Berman LLC, are still solvent and functioning.

"The broker-dealer subsidiaries have not filed for bankruptcy and are expected to close only after the orderly transfer of customer accounts to another registered and SIPC-insured broker-dealer," according to the Financial Industry Regulatory Authority, which regulates securities firms.

Q. Is your bank safe?

A. FDIC Chairman Sheila Bair said 98 percent of banks are well-capitalized, representing more than 99 percent of all bank assets.

Depositors within the FDIC's deposit insurance limits needn't worry. Even if their bank fails, they are protected.

The basic insurance amount is $100,000 per depositor per insured bank. That includes money market deposit accounts but not money market mutual funds.

Certain retirement accounts, such as individual retirement accounts, are insured up to $250,000 per depositor per insured bank.

On joint accounts, if both account owners have equal rights to withdraw money from the account, each person's shares of all joint accounts at the same insured bank are added together and the total is insured up to $100,000.

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Q. Should annuity owners in general pull their money because of the government takeover of American International Group, one of the world's largest insurance companies?

A. An annuity is a financial product sold by an insurance company. If an insurance company can't pay claims, state guaranty funds, such as the Texas Guaranty Association, step in and provide coverage.

"In general, the insurance markets and the insurers are healthy," said Sandy Praeger, president of the National Association of Insurance Commissioners, which represents state insurance regulators. "If a person has an annuity with an insurer, there is no need to panic and cash out the annuity. In fact, there might be costly penalties associated with that action."

Q. The Reserve Primary Fund, a money market mutual fund, fell below the sacred $1-per-share level. Does this mean money fund holders should worry about their fund "breaking the buck"?

A. Money funds are viewed as ultra-safe havens for investors to park their cash, and fund companies strive to maintain the $1-per-share level. Breaching that threshold is a rare occurrence.

Other money funds aren't expected to break the buck, said Peter Crane, president of Crane Data, which follows money funds and publishes Money Fund Intelligence.

"Throughout this whole subprime crisis, investors haven't blinked," he said. "They continue to add money to money funds. No other funds are going to break the buck."

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© 2008, The Dallas Morning News.