Your savings

Last reviewed: December 2008

Are my bank accounts safe?

Fifty-five percent of respondents said they were concerned about this. Almost all bank savings, checking, and money market accounts and certificates of deposit are insured by the Federal Deposit Insurance Corp. for up to $250,000 per depositor until Dec. 31, 2009. (After that, it’s $100,000.) Deposits in IRAs and some other retirement accounts are also insured up to $250,000 per owner. Credit unions are generally insured for the same amounts through the National Credit Union Share Insurance Fund.

What to do

Keep your balances within the coverage limits. Check the health of your bank and/or credit union with Bankrate.com’s Safe & Sound ratings.

If your bank fails, insured accounts will probably be assumed by a new bank. It usually takes no more than two business days to get your money. Keep copies of your statements and deposit slips, especially if you bank online, to ensure that the new bank’s records are correct. See whether interest rates, fees, or terms have changed. If you have uninsured balances, you’ll have a claim against the closed bank for the uninsured amount. As the assets of the bank are liquidated, you might receive payments.

 

Where can I find the highest interest rates on savings?

Online savings accounts at banks such as HSBC and Capital One were yielding more than 3 percent at press time. You could get more than 4 percent on one-year CDs at many banks. But some of the highest-yielding CDs are often from banks on shaky footing.

Money market mutual funds are not covered by the FDIC (unlike money market deposit accounts), but some are being guaranteed temporarily by the government. They generally don’t offer yield advantages over bank CDs.

What to do

Shop for the best savings and CD rates at Bankrate.com. Keep your CDs to no more than a year or two in duration. Interest rates are low and could rise if inflation increases.

 

Should I bail out of stocks?

It’s hard to time the market so that you catch the tops and bottoms. If you bail out and wait too long to come back, you can miss much of the upside when stocks rally.

The Consumer Reports Money Lab analyzed the last bear market, when the Standard & Poor’s 500 stock index fell 49 percent from March 2000 to October 2002, to see whether it was possible to wait out the losses without missing the gains. If you had bailed when stocks were falling and gone back in when the coast was clear, you would have missed the first 19.4 percent gain in that five-year bull market.

What to do

Keep a long-term view and continue to contribute to a diversified portfolio of stocks, bonds, and (a little) cash. Or invest in a life-cycle fund, which includes all three.

Posted: October 2008 — Consumer Reports Magazine issue: December 2008