Bank crisis: 10 things to know now

Are money market funds still safe?

On Sept. 16, 2008, we got the disturbing news that one of the nation's oldest money market funds "broke the buck," or allowed its share price to dip below $1. The $65 billion Reserve Primary Fund held $785 million in short-term obligations from the now-defunct Lehman Bros., making those investments worthless.

This was a big deal because money markets have been touted as super-safe places to park your cash. In the past, mutual fund companies rushed to inject their own money if the value of their investments dropped far enough to threaten the sacred $1-a-share mark.

If you've got cash in a money market fund that you'll need within the next couple of years and you're concerned, you can consider transferring it to an FDIC-insured bank. Just pay attention to the FDIC insurance limits -- typically $250,000 per depositor per bank.

MSN Money columnist Jim Jubak predicted in September 2007 that this would happen, by the way. So did MSN Money columnist Jon Markman, in "Your 'safe' money isn't so safe." You should start reading these guys if you don't already.

I have an insurance policy with AIG. Am I still covered?

Yes. AIG's insurance businesses are still operating. The company ran into trouble in other areas, specifically by selling contracts meant to protect buyers against defaults on a variety of assets, including mortgage loans. As mortgages went bad and housing values plunged, so did the value of these contracts, which helped lead to the company's tens of billions in losses.

Further, every state has guaranty associations that ensure policyholders continue to receive some level of coverage. Although limits differ, most states offer up to:

• $300,000 in life insurance death benefits.

• $100,000 in cash surrender or withdrawal value for life insurance.

• $100,000 in withdrawal and cash values for annuities.

• $100,000 in health insurance policy benefits.

Property insurance guaranty funds, which step in for insolvent homeowners or auto insurers, pay out the policy's limits or $300,000, whichever is less.

What about other insurers? Should I be concerned about them?

You always want to monitor the strength of your insurer, as its ability to pay out claims in excess of the guaranty amounts may be at stake.

Several companies rate insurers, including A.M. Best, Moody's and Standard & Poor's. Insure.com offers an interactive tool to check S&P ratings.

If you want to switch to another insurer, your options may be many -- or nonexistent. You typically can transfer annuity money from one company to another in what's known as a 1035 exchange without triggering taxes, although you may owe surrender charges.

If you have a life or health insurance policy and your health has deteriorated, however, you could find getting new coverage difficult.

If there's a credit crisis, how come my credit card company just raised my limit?

Credit card issuers are cozying up to folks they consider good risks while trying to limit the damage that can be done by people they consider bad risks.

That's why borrowers with mediocre and worse credit scores are finding their credit limits being reduced and their interest rates raised, while those with good scores continue to enjoy excellent access to most forms of credit.

• Talk back: Is America in permanent decline?

Mortgage lending is somewhat of an exception. You'll still have far more options if you have good scores, but you may also need a bigger down payment (or more equity, if you're refinancing) than you have in the past. (See "How to wow your mortgage lender.")

What's going to happen next?

Nobody knows. Things could get worse, much worse or better.

If you feel like you simply must do something, though, consider contributing money to the American Red Cross. (See "How to give even when you're broke.") While we worry and fret about what disasters might happen, the Red Cross is dealing with disasters that are happening. Open your wallet for someone else, and I'll make one rock-solid prediction: You're going to feel at least a little better.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated March 26, 2009

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