Why Bank Mutual Funds Are No Safer than Wall Street’s

Why Bank Mutual Funds Are No Safer than Wall Street’s

It is no secret that most of us – including yours truly – like the idea that bank deposits are insured by the FDIC. Hey, any assurance of protection, however small, is welcome when it comes to my hard-earned money, especially given the history of banks in America. However, I have noticed a very troubling misunderstanding in the area of securities (which I refer to as “mutual funds” in this forum) that are sold by bank-affiliated companies.

Easily 9 out of 10 folks are under the impression that the mutual funds they buy through their banks are also FIDIC insured, and therefore safer than those on Wall Street (or those purchased from a non-bank brokerage or investment company). The fact of the matter is, no mutual fund in America – regardless of whom you bought it from – is insured by the FDIC. The FDIC insures up to $250,000 of your checking, savings, CD, and bank money market savings accounts only.

When you buy mutual funds of any kind (even money market mutual funds), you do not have any further protection – when it comes to FDIC coverage – than someone who buys the same mutual fund from a non-bank-affiliated investment company or broker, because no such protection exists.

Interestingly enough, federal law mandates that this fact be disclosed on all documentation that relates to these bank-affiliated investment accounts. And to their credit, these institutions do disclose that the underlying securities are “not FDIC insured”. But for some reason, many fail to read the “not” or simply conclude that all bank accounts come with FDIC protection, in spite of the notice.

Of course, not all mutual funds or general securities are the same, in terms of riskiness. That is why it is imperative that you carefully consider your situation and also understand the exact ramifications of your choices. The one thing you can count on for sure is that FDIC protection has absolutely nothing to do with securities.

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