Savings: Is My Bank or Brokerage Going to Disappear

Savings: Are There Any Safe Havens Left?

It sure doesn't feel like it. Even conservative investments - like ultrashort- term bond funds and a single money market fund - have lost value recently. But rest assured, your cash accounts are still extremely safe. To shore up confidence in money-market mutual funds after a prominent portfolio "broke the buck," the Treasury Department launched an insurance plan to guarantee their value.

What's more, bank money-market accounts and CDs are as protected as ever. While it's certainly hard to tell which banks will eventually survive this financial meltdown, your accounts are FDIC-insured.

Finally, if you're looking for a safe option within your 401(k), consider a stable value fund. These portfolios often invest in a diversified mix of short- to intermediate- term bonds that are backed by different insurers. Plus, they've been yielding around 4% lately.

Is My Bank or Brokerage Going to Disappear?

Even with the government stepping in to buy up the crummy mortgage-backed securities that are endangering the health of so many banks and brokers, this relief won't be immediate. It may take weeks for the Treasury Department to put together a team to evaluate these bonds. In the meantime, more banks and brokers could go under or be forced to sell out to healthier firms.

Still, the tally of failed banks is unlikely to come close to the number we saw in the savings and loan crisis. Between 1986 and 1995, 1,043 thrifts went under (though many of them were tiny). So far this year, only 13 banks and savings and loans have failed, according to the Federal Deposit Insurance Corporation. That includes Washington Mutual, the nation's largest S&L, which was shut down before its deposits were sold to J.P. Morgan Chase.

Regardless of what the final tally is, it's important to keep in mind that your bank deposits are for the most part safe. Deposits up to $250,000 per person per institution and $500,000 for joint accounts will be protected by the FDIC (The FDIC temporarily raised the limits from $100,000 and $200,000 respectively through December 30, 2009.). Some retirement accounts are covered up to $250,000.

Investment banks and brokerages have also come under pressure. Here too you are mostly protected. Unlike commercial banks, which use your deposits to lend to other customers, brokerages are supposed to segregate your assets from theirs. So if you own 1,000 shares of General Electric and your brokerage collapses, your 1,000 shares of GE should still be there and will most likely be transferred to another broker on your behalf.

If for any reason your failed broker can't locate your securities, up to $500,000 of your assets per account is covered by the Securities Investor Protection Corporation, a nonprofit funded by member firms. With a few exceptions, SIPC limits its safety net to SEC-registered investments. So while your stocks, bonds and mutual funds will be covered, foreign currency, precious metals and commodity futures contracts won't be.

What Would Happen If My Insurer Went Under?

You may have wondered that very thing before the federal government stepped in with an $85 billion loan guarantee to save American International Group from bankruptcy. Since then no other large insurance company appears to be in similar peril. That's because few insure mortgage bonds, the business that contributed to AIG's problems.

In the event that your insurer goes belly up, you have protections. If you have an outstanding claim when your insurer fails, a state guaranty fund will cover it. The rules vary, but funds typically pay up to $300,000 in claims on most policies.

In nearly all states, disability payouts have no caps. With a variable annuity, you are completely protected because you're investing in mutual-fund-like separate accounts held in your name, and insurance companies can't touch those assets when they liquidate.

If you have yet to collect on your insurance policy, will you face any coverage gaps? With life insurance, you shouldn't lose coverage: In past failures, regulators have moved policies of failed insurers to healthy ones. For most other types of insurance, you'll have 30 days to find another insurer. And if you have paid in advance for, say, a year's worth of homeowners insurance, you can apply for a refund from your state insurance fund.

How Tough Is It Really to Get a Loan Today?

For months you've likely been hearing about (or even experiencing) tight credit: frozen home-equity lines of credit, lower credit-card limits, tougher loan standards. That could be just the beginning. One reason regulators have been so anxious to step in during this crisis is the fear that consumer and business borrowing will be shut off altogether.

For now, though, many people are still able to get loans. "If you have good credit, job stability and low debt, there is a good likelihood that you will get a mortgage," says Marc Savitt, president of the National Association of Mortgage Brokers.

In general you'll need a 660 credit score and a 10% down payment to qualify for a loan. Another important criterion is how much of your monthly income goes to repaying all your debts. Today lenders want you to cap that at 41% of your income.

Getting a small business loan is similarly tough. But if you can borrow and have the itch to strike out on your own, small business experts say economic downturns can be a good time to start a venture. In bad times, you may find better deals on, say, advertising and office space. And some of the land mines are more apparent.

"When existing companies are stumbling, it's more obvious what mistakes are to be avoided," says Bob Chalfin, a Metuchen, N.J. small business adviser and a lecturer at the Wharton business school. "When there is change, there is opportunity.

The Real Estate Market

Is There Any Hope for Home Prices?

The burst real estate bubble that kicked off this crisis is unlikely to reinflate quickly. "I don't see the slump in housing prices ending anytime soon," says Dean Baker, co-director of the Center for Economic Policy and Research. The government takeover of Fannie Mae and Freddie Mac lowered mortgage rates briefly (which helps buyers afford your home).

But the bankruptcy of Lehman Brothers, the failure of Washington Mutual and the sale of Wachovia, as well as the stock market sell-off, have made investors nervous about everything, mortgage bonds included. And that has pushed home-loan rates right back up.

The proposed government bailout could help home prices if the banks that get relief turn around and make new loans, but it's not clear that they will. More important, housing prices are not just a factor of mortgage rates. Foreclosures and slow sales have left 4-million-plus homes on the market, nearly half a million more than two years ago. That could get worse before it gets better if rising unemployment translates to fewer buyers to work off that fat inventory.

"In the long run none of what we're doing now is going to matter that much to real estate," says Wellesley economics professor Karl Case. "Home prices have to do with the scarcity of land and perception of that scarcity."

Until homes for sale are again scarce, it will continue to be better to be a buyer than a seller. Most economists expect another 10% drop in housing prices nationally over the next year. Some, like Nouriel Roubini of New York University, say a 15% to 20% drop is more likely.