Mellody's Money 'Cheat Sheet'

Sept. 18, 2008 — -- What does the stock market plunge and collapse of financial giants Lehman Brothers and AIG mean to you? "Good Morning America" financial contributor Mellody Hobson breaks it down with a finance "cheat sheet" and assurances that your money is safe.

Checking, Savings and CDs

First and foremost, keep in mind banks are the bedrock of the American financial system. Since the Federal Deposit Insurance Corporation, more commonly referred to as the FDIC, was established 75 years ago, no consumer has ever lost a penny of his or her deposit at an FDIC-insured institution. That is an incredible track record. The basic FDIC coverage insures $100,000 per depositor per bank and up to $250,000 for some retirement accounts. So, it is safe to say, if your money is in one of 8,494 FDIC-Insured banks, it is safe. The $100,000 is per person—so you and your spouse are covered up to $200,000. You should log on to the FDIC's Web site to see if your bank is FDIC insured -- www.fdic.gov.

Your Insurance

If you have a personal insurance policy with AIG (and many do—as AIG is a leading provider of property and casualty insurance in more than 130 countries), you are still covered. The crisis is at the corporate level and most policies are with separate, related companies managed at a state level. Your policy is protected by the state insurance commission and ultimately by local state guaranty funds.

Your Brokerage Accounts

As of now, Lehman Brothers has said all client securities held in brokerage accounts are safe. The values of the securities in your account are never protected against the fall of the market. If the brokerage firm is unable to deliver the securities that are rightfully yours, the Securities Investor Protection Corporation (SIPC) will step in to provide a layer of protection for your stocks and bonds. While the SIPC does not reimburse you for a loss in the value of your investments, they do guarantee the underlying stocks and bonds will be issued to your account.

Money Market Mutual Funds

It is important to remember the sudden Lehman Brothers demise and the extreme market volatility are anything but typical. In fact, since 1970, when money market funds were first created, there is only one case where a fund fell below a dollar.

I do not think there is any cause for concern with money market fund accounts. Only a small number of funds owned Lehman Brothers, and those that do are being covered by their parent companies to ensure the safety of the investment. The fundamentals of money market funds remain very sound. It is important to keep in mind that the fund industry is one of the most strictly regulated in the country. The benefits of investing in a money market fund far outweigh any of the risks.

Mellody Hobson, president of Ariel Investments in Chicago, is "Good Morning America's" personal finance expert. Click here to visit her Web site, www.arielinvestments.com. Ariel associates Aimee Daley and Matthew Yale contributed to this report.