If you bought a certificate of deposit from the Stanford Financial Group, you may have thought the investment was risk free, after all a CD is a CD, right?
Financial planner Lance Roberts says the certificates of deposit sold by Stanford differed from CDs offered by most major banks because of four letters, FDIC. It stands for the Federal Deposit Insurance Corporation.
"The FDIC steps in to cover you up to a $250,000 dollar limit," said financial planner Lance Roberts. "And that is an important guarantee to have because the Treasury has said, we will make sure the FDIC has the money."
The FDIC will give you back the money in your CD, up to $250,000 if the financial institution fails. Financial advisors say if you are uncertain if your CDs are backed by the FDIC, ask the person who sold them to you.
"You can ask the person selling you the CDs and it is fraud for them to lie, so they do have to tell you the truth," said Dr. Arthur Warga who is the dean of the Bauer College of Business at the University of Houston.
Dr. Warga says CDs backed by the FDIC can be a great place to put your money in times of uncertainty.
"Right now the government will insure CDs, if they are sold the right way up to $250,000 and it's just like a savings account," Dr. Warga said.
You will not get huge returns from an FDIC insured CD, and that's one way to figure out if they are safe.
"If somebody is paying you twice what another bank is offering, one that is backed by the FDIC, if they are paying twice, which was the case at Stanford Financial, alarm bells should be going off pretty hard," Dr. Warga said.
So if you have CDs and did not ask if they were backed by the FDIC do it now.
What about brokerage firms and credit unions, they sell CDs too are those ok?
In the case of brokerage firms, CDs are insured if they are backed by the Securities Investor Protection Corporation, or the SIPC. If a brokerage firm fails, the SIPC comes in to return money to investors.
As for credit unions, the National Credit Union Administration backs CDs sold there.
In the case of Stanford Financial, its CDs weren't backed by the federal government. The question remains who they were backed by?
