Silicon Valley startups nearly lost all their cash when Silicon Valley Bank collapsed this month. Almost all of the cash at this bank was uninsured. Had the government not intervened, thousands of companies would have instantly gone up in smoke.
The Crypto Currency community took the chaos at Silicon Valley Bank (and Credit Suisse and others) to remind everyone of their mantra: “US currency isn't safe! The banks aren't safe! Invest in Bitcoin!” They seem to have forgotten that Bitcoin is currently down about 60% from it’s peak. They seem to have forgotten FTX and Celsius collapsed just months before, causing many investors to lose everything.
So what should you do to keep your money safe? Buy gold bars? That’s precisely what St. Paul business owner, Phuong Dinh, did. She never trusted banks. 2008? She was ready. 2023? No problem. She was prepared. Dinh saved all her money in gold bars, jewelry, and cash. Reckless, greedy executives couldn't impact her life savings. There was one little problem with her plan though -- her home was broken into, and a thief stole EVERYTHING.
Now what? No banks? No crypto? No gold bars? Before you spread your money around to hundreds of banks or bury a bunch of gold bars in your backyard, you should know how you are protected and how you can stay protected.
The FDIC insures deposits up to $250,000 for individuals and $500,000 per joint account per bank. So, if you need to have more than $250,000 in an account, you should move the excess to a second bank.
A Solution for Lazy People with a Lot of Cash
If diversifying your banks sounds like too much work (it is), you could open an account at www.maxmyinterest.com (or a competing site), which will automatically put your money in the highest-yielding savings account up to the FDIC maximum and then transfer the remainder to the next highest-yielding account. They will make sure everything is insured and at the highest possible yield.
If you don’t like that, you could buy a treasury bills fund, or a government-backed money market account, which will keep your cash government-insured (and producing interest) for nearly as much as you want.
What About Investments?
Investments at major brokerage houses also have protection called SIPC protection. This SIPC insurance does not cover a person against market losses, but it does cover their investments in the case of brokerage firm failure. Above this amount, most major brokerage firms purchase insurance from Lloyds of London. For Schwab, this keeps accounts insured for up to $600 million dollars per investment account in the case of brokerage firm failure.
The Silent Thief
Last of all, if you are concerned about going over FDIC insurance limits, you likely are holding too much cash. Although cash is an excellent and safe short-term savings vehicle, it is tremendously dangerous to your wealth in the long term. At only 3% inflation, your cash will lose roughly 30% of the value of your cash every decade. Inflation is a silent thief, quietly lighting your money on fire every month.
Unless you study the Great Depression, you may not think much about bank failures but historically, they happen far more often than one might think. You should assume your bank will collapse and keep your money insured. Trust, but verify!