Crisis is a word that gets used a lot these days. Especially in headlines.
It’s loaded with meaning… and feelings. These days you might find yourself spinning out with something like panic, dread, fear, anxiety, and any variety of mental/emotional swirls.
Worse, it can get you caught up in an “us and them” mindset about how the problem should be dealt with. Crisis mixed with politics in a never-ending media reel can eventually work almost any sound-minded person into a frenzied state.
Kind of like what’s been going on with the economy, and the failed banks, and now the potential debt ceiling “crisis.” It’s not that these aren’t things that have real repercussions, but there’s also a lot that’s out of your hands.
What you can do in these times is focus on what you CAN control.
One of those things: Making a plan for your money for when things go awry. That’s what I want to get into today, in part two of my navigating a banking crisis coverage.
But money planning isn’t just about government safeguards. You want to hold onto what’s yours and only give the IRS exactly what’s theirs. So, let’s talk about that:
calendly.com/davidforney
And here’s a start to what you need to know about securing your money when banking gets shaky.
Your Castle Rock Tax Friend’s Thoughts on Navigating a Banking Crisis
“A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope
Of course, you know that the “banking crisis” is all the news these days. (This isn’t even the first time I’m mentioning it to you.)
Well, if you’re still worried about it… you’ve got company.
Warren Buffett says the crisis isn’t over (though he adds that depositors shouldn’t worry …). Bank execs blame depositors for panicking. Senators blame the bank execs for crappy decisions. Nothing like finger-pointing to make the rest of us feel calm.
I think it’s important for you to know what protection you have in this crisis, if any, and what options there are if the crisis gets worse.
So, here are some thoughts on navigating the banking crisis right now.
Navigating a Banking Crisis: What’s going on?
Banks fail for many reasons, but loans and assets can be one of the biggest problems. Money loaned or invested unwisely (or just unluckily, as happened with Silicon Valley Bank and bonds as interest rates rose) can torpedo a bank. Losses mount, liabilities swamp assets, and word gets around to the depositors who quickly yank their accounts.
Banks have also been known to make bad loans to their own execs and other insiders or have rogue employees making sketchy money moves amid lousy risk assessment or supervision. Sometimes regulators step in to shutter a bank, or the bank may devote too many resources toward non-banking activities (such as real estate investing) where a lack of expertise quickly causes problems.
Then there are the runs, where depositors flock to a troubled bank to take out all their money. This happened in America during the Great Depression but has rarely occurred since — largely because of a protection put in place 90 years ago.
Navigating a banking crisis with the FDIC
The Federal Deposit Insurance Corporation was created in 1933 after thousands of banks failed in the 1920s and 1930s. As an independent agency of the federal government, the FDIC gets no money from Congress but rather is funded by premiums that banks and savings associations pay for deposit insurance coverage.
You’ve probably seen the FDIC’s brassy sign in every bank, along with a dollar sign and a crucial number: 250,000. That’s the amount your account is insured to. Lose more than that in a bank failure and you can, well… lose more than that.
The insurance amount is per depositor, per insured bank, for each account ownership category (including single or joint accounts, some retirement accounts, and some trust accounts, among others). Types of accounts insured include checking and savings, money market deposit amounts, certificates of deposit, negotiable order of withdrawal (NOW) accounts and cashier’s checks, money orders, and other “official items” that the bank issues.
(The FDIC also has a deposit insurance estimator here.)
The FDIC insures deposits only and not securities, mutual funds, or similar investments. For those, you need the Securities Investor Protection Corporation (SIPC), which will insure your money up to half a mil.
It’s also good to know that the National Credit Union Administration (NCUA) is the FDIC equivalent for credit unions; it offers similar levels of protection.
Getting creative with navigating the banking crisis
Obviously, your first consideration in protecting your banked money is the FDIC threshold: Don’t go over it per account, per bank, and you’re good. If you have more than this amount in savings, think about putting the excess in other accounts at different Castle Rock banks.
If you want to take the “different baskets” approach further, there is another option: the old CDARS, or the Certificate of Deposit Account Registry Service (now named IntraFi Network Deposits). It’s a network of institutions where investments are in certificates of deposit (CDs). Basically, your money is diffused around the network on CDs that are at or under the FDIC insurance threshold. Account limits apply, though, as do minimum amounts to open a CD and minimum lengths of time to tie up your money. This option may be beneficial if you have a hefty amount in savings.
And in case you forgot: brick-and-mortar banks aren’t the only game in town for saving money, by the way. Credit unions, started and often owned by their participants, offer traditional banking services and come in sizes ranging from small and local cooperatives to large institutions with a nationwide presence and thousands of participants.
Compare Castle Rock credit unions using the same factors you’d use when shopping for a bank: fees, customer service, branch locations, access via tech, and so on. They’re also not-for-profits, so your fees might be lower, which is a nice little cherry on top.
Yet another option is the newest sibling in the banking world: online banks. Tellers and stamped passbooks seem like things from the age of black-and-white TV — and online banks today offer many of the same services and fun cutting-edge ways to manage your money (usually involving your smartphone). Look for similar services to brick-and-mortar banks — including FDIC insurance and free ATMs.
Also, remember that online banks and no more or less safe from collapse than their physical counterparts… but different baskets might be your safest tactic until this mess blows over.
If you are worried about safeguarding your cash under such fluctuating circumstances, don’t hesitate to reach out with any concerns. This is the world we live in now, but we’re here for you through this. Let’s do this together.
On your behalf,
David Forney