An Important Tip On Safeguarding Your Money

Cash money, is normally protected up to $100,000 - whether it is held by a bank or a brokerage firm. On the other hand, securities that are held by a broker can be protected in amounts ranging from $500,000 to several millions of dollars, depending on the type of coverage provided by your particular broker. You should be certain as to the amount of insurance protection that your broker provides for your account.

Since securities receive greater insurance protection than does cash, if you are holding more than $100,000 in cash, you may be better off with a highly liquid security than with cash. Just be certain that your brokerage account is coded as a "cash" account and not as a "margin" account because the rules are different for each type of account.

The assets in your margin account are merged with the brokerage firm's assets, even though they are maintained on the brokerage's books and records in your name. Thus, the broker can use your assets as collateral for the brokerage firm's borrowing. And if your broker should ever go belly up, then you would become a general creditor of the brokerage firm. So while you still have insurance, as a creditor, you may have to wait in line to get your money back. On the other hand, securities held by your broker in a "cash" account are, by law, segregated from other assets.

Aren't you likely to be aware of how your account is coded at your broker's firm? Not necessarily. Brokers have complicated documents that you must sign before an account is opened. It is entirely possible that within the many pages of fine print which comprise the typical Terms & Conditions under which the account was opened, there may be a reference as to the type of account that is being opened for you. In any event, it can't hurt for you to confirm that you do have a cash account and not a margin account.

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