How are bank accounts insured?

ASK THE FOOL

Covered Banks

Q: Are bank accounts insured? If so, how? — T.B., Batavia, New York

A: They’re insured by the Federal Deposit Insurance Corp. (FDIC), which was created in 1933 following a rash of bank failures.

The FDIC insures checking, savings and money market accounts, and CDs for up to $250,000 per depositor at each bank or savings and loan for each account ownership category. Some institutions offer further coverage, and some don’t offer FDIC protection at all, so be sure to check.

Note that FDIC coverage doesn’t extend to stocks, bonds, mutual funds, life insurance policies, annuities and some other things your financial institution might offer. For those, ask what kinds of protections may be provided. You can learn more at FDIC.gov.

Q: Can a consumer credit counseling organization really help me get out of debt? — P.G., Columbus, Indiana

A: It might, but tread carefully, as some can hurt more than help.

A good consumer credit counseling service may review your credit report with you and offer free guidance. If necessary, it might negotiate with your creditors for lower interest rates for you, and (typically for a fee) create a debt management plan (DMP) with scheduled payments. You may be making payments to the counseling service, which then pays creditors. That can work well — but only if you follow through on the plan. It’s not a magic bullet.

Research any credit counseling outfit before engaging it. You can vet services at the Better Business Bureau (BBB.org), and you can look up service providers certified by the National Foundation for Credit Counseling at NFCC.org (or call the NFCC at 800-388-2227).

The Federal Trade Commission also offers valuable tips and warnings about credit counselors at Consumer.FTC.gov.

FOOL’S SCHOOL

Smart Withdrawing

If you enter retirement having saved as much as you think you’ll need, you still have some critical decisions to make. For example, you need a plan for how you’ll withdraw funds over time without running out of money.

The “4% rule” has long been an answer to that question, suggesting that you withdraw 4% of your nest egg in your first year of retirement and then adjust subsequent withdrawals for inflation. The rule was designed to make your money last for 30 years. It’s not as widely recommended as it used to be, though, for some good reasons.

For starters, the rule is highly dependent on where the stock market happens to be on the day you retire. If the market falls sharply before you retire, shrinking your nest egg, you’ll be making smaller withdrawals than if the market hadn’t fallen. Also, many people have simply not saved enough money to get a generous income from a 4% withdrawal.

So now there are a range of more flexible variations on the rule. One variation is to assess whether the overall stock market’s price-to-earnings (P/E) ratio is high or low, historically speaking, before commencing withdrawals. The more expensive the market is (the higher the P/E ratio), the less you can safely take out — but when the market’s P/E is low, you can sometimes take out as much as 5% — or more — annually.

Another variation suggests that you take out more in years when the market has been rising, and less during downturns. If your portfolio hasn’t grown much over a certain year, you might not adjust your withdrawal for inflation — or, if possible, take a smaller withdrawal.

Other factors can also play a part in your withdrawal rate, such as how long your retirement may be, what other income streams you have (such as a pension, annuity or Social Security), inflation rates, taxes, your portfolio’s allocation between stocks and bonds and so on. Consulting a financial planner can make good sense here. You can find a nearby fee-only planner via NAPFA.org. Learn more at Fool.com/retirement.

My Dumbest Investment

Good Money After Bad

My dumbest investments came from following advice from others without doing my own homework first.

I saw some interviews with Magnum Hunter Resources’ CEO Gary Evans, listened to its conference calls and felt comfortable buying shares, as its market value was far below the value of its assets. I watched my $10,000 investment losing ground as the stock price entered a trading range.

One week, the stock broke out of range, and I quickly sold my shares for a $2,000 loss. Then I made a tragic mistake, playing day trader. I bought and sold repeatedly, as the shares fluctuated within a certain range, and made some money. Then the stock plunged. I ended up riding a $20,000 investment into the company’s bankruptcy.

I’m still in shock over how I got sucked in and threw good money after bad. — Chad, online

The Fool responds: It sounds like you were engaging in technical trading, focusing on stock price patterns instead of studying and keeping up with the health and prospects of the company.

Magnum Hunter took on lots of debt to make money in the shale energy boom, buying land and competitors. But energy prices fell, and the company filed for bankruptcy protection in 2015.

After exiting bankruptcy in 2016, it took on a new name in 2017, Blue Ridge Mountain Resources, and in 2019, merged with Eclipse Resources, becoming Montage Resources.

FOOLISH TRIVIA

Name That Company

I trace my roots back to 1906, when a British immigrant launched me. I first sold arch supports, targeting workers who were on their feet all day, such as police officers and firefighters. Today I’m most known for my athletic footwear — which I didn’t start making until 1938. Some stores were annoyed when I started selling sneakers in multiple widths. My first initial didn’t grace my shoes until the 1970s. Based in Boston, I employ more than 6,000 people globally, and I took in more than $4 billion in 2018. I make many of my sneakers in America. Who am I?

Last Week’s

Trivia Answer

I trace my roots back to the 1930 founding of a food store in Winter Haven, Florida. My profit-sharing helped me stand out. My founder opened a supermarket in 1940 that featured air conditioning, frozen-food cases, dairy cases, a flower shop and more. Today I’m America’s largest employee-owned supermarket chain, and one of its largest-volume supermarket chains, as well.

I boast more than 1,200 stores in seven Southern states, with more than 200,000 workers and 2018 sales topping $36 billion. I’ve been one of Fortune’s 100 Best Companies to Work For — for 22 consecutive years. Who am I? (Answer: Publix)

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.