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There Remain Safe Places to Keep Cash

At times like these, it’s tempting for investors to run from risk and seek what many consider to be the safest investment: cash. While we encourage our clients to remain focused on their long-term goals and asset allocation targets, which may include a cash allocation, we recognize there are concerns about the safety of all investments, including cash. Amidst the turmoil of today’s financial markets, there is some reassuring news about the safety of cash investments.
The Federal Deposit Insurance Corporation (FDIC) insurance cap on bank deposit accounts has been temporarily raised to $250,000 from $100,000, thanks to the Emergency Economic Stabilization Act of 2008. That same legislation, signed into law recently by President Bush, has temporarily increased the limit on NCUSIF (National Credit Union Share Insurance Fund) protection of credit union deposit accounts to $250,000 from $100,000. Both increases are effective through December 31, 2009. 
If a brokerage firm is insolvent, guilty of misappropriation or negligence and lacking enough funds or securities to repay clients’ assets, and the firm is a member of the Securities Investor Protection Corporation, the SIPC will cover losses up to $500,000 per account. Many brokerage firms have insurance that protects clients from losses in excess of the SIPC limit. As for any uninvested cash that the firm swept to a bank savings account in the client’s name, up to $250,000 is protected by the Federal Deposit Insurance Corporation (FDIC).

Even money market mutual fund accounts, which are not covered the FDIC, are being targeted for protection. The U.S. Treasury has established a temporary program to support these accounts; funds will pay a fee if they elect to participate in the program. If a participating fund’s net asset value falls below $0.995, the federal government will guarantee to investors that each share they held as of close of business on September 19, 2008 will maintain a stable share price of $1. This program will be available to money market mutual funds through September 18, 2009.

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