The Only Thing We Have to Fear?

I came into the world in the middle of the Great Depression. My late father, an accomplished musician, was lucky enough to work three part-time jobs to keep his family together through the worst of it.

As a child I assumed Franklin D. Roosevelt was America's only president -- he was the only one I knew about until my seventh year when he died in April, 1945.

One of FDR's memorable quotes, (and there were many), occurred in the opening paragraph of his First Inaugural Address, on March 4, 1933. The words were spoken at a time when America was in an economic panic, banks were closed, unemployment was soaring and the stock market had collapsed. By the time the market crash bottomed out in 1932, stocks had lost nearly 90% of their value and the market did not again reach its previous highs until 1954.

The new president understood that the American people wanted reassurance and hope, but he also wanted them to understand that irrational fear was standing in the way of recovery.

Thus it was that he intoned his famous quote: "This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself -- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance."

Fear in the Family

I have read much in recent days describing what amounts to a growing financial panic. But I didn't realize personally how wide spread this was until last evening chatting on the phone with one of my four adult children. She asked if I thought she should transfer funds from her bank to a credit union as a protective measure.

I explained the role of the Federal Deposit Insurance Corporation (FDIC) and that there was a companion agency that insured credit unions, the National Credit Union Administration (NCUA)

So no need to transfer funds because the United States government is the insurer of last resort in both cases, and backing the government are 300 million plus Americans and the trillions in taxes they pay. (For more about the FDIC, click here for an essay by David Newman, Market Analyst for The Sovereign Society).

I have commented previously about the precarious financial state of the federal government but let's assume the government is not going to collapse -- at least not yet.

As most bank and other depositors know, the basic insurance limit on U.S. deposits is US$100,000 in a single bank or other financial institution. If you know the rules well, however, it is possible for a single person to extend that coverage to more than US$500,000 at one bank. This can be done by utilizing multiple account ownership categories (private, commercial, business, investment) since the US$100,000 insurance limit applies by account category and per account holder.

Cash Protection Check List

Here is a handy check list of ways in which you can arrange your funds that exceed that $100,000 limit.

1) Retirement accounts. Money deposited in IRAs, Roth IRAs and certain other retirement plans is insured up to $250,000.

2) Joint accounts. Deposit accounts owned by two or more people are insured up to $100,000 for each account holder listed.

3) POD account. Set up an informal trust account known as a "payable on death," in which depositors name a beneficiary or beneficiaries who will receive money if the primary account holder dies. For each qualified beneficiary, the FDIC will boost insurance coverage by up to $100,000.

4) Brokered CDs. Buy multiple certificates of deposit through a brokerage firm. That's a fast way to spread out money across different institutions, capturing the full FDIC protection.

5) CDARS. This deposit placement service, short for Certificate of Deposit Account Registry Service, disperses deposits into different individual CDs of up to $100,000 each, up to a maximum covered amount of $50 million.

6) Revocable trusts. Under this estate planning strategy, the owner assigns beneficiaries but retains control of the assets during his lifetime. The FDIC insures the interests of each beneficiary up to $100,000 each.

7) Spread the risk around simply by opening accounts at different banks. We recommend at least one of these be a solid offshore bank. We can help you on that point. For more about offshore banking, click here.

For more information on these strategies, see today's Wall Street Journal.