Bank Closure Protection: How to Reduce Your Risk and Protect Your Cash!

Personal Finance

March 17, 2023

Bank Closure Protection: How to Reduce Your Risk and Protect Your Cash!

With the Silicon Valley Bank and Silvergate failing, everyone is stressing out and worrying about their cash deposits. Here are some bank closure protection tips to help reduce your risk.

The 2008 Great Recession

It’s all over the news…banks are failing! This may seem super scary and has everyone wondering, “Will this cause us to go into a market crash like 2008?“

The 2008 Great Recession, we called it. A very scary time that caused many people to lose their homes and banks receiving a bailout. However several factors that caused it, from poor regulations, wall street making risky deals, and bad lending practices. Eventually, it all caught up with us and things started to go downhill. Thus the 2008 Great Recession was born.

Why did SVB and Silvergate fail?

Silicone Valley Bank (SVB) failed due to investing in US treasuries, but the time it would take for them to mature was longer than their deposits. SVB is known for start-up companies, and with the economy, these start-ups withdrew money to cover their costs. This, along with the bank’s funds tied up in treasuries, resulted in the bank’s ability to cover its debt.

Silvergate failed due to accepting/investing in cryptocurrencies. With the decline in their value, it made it difficult to cover their costs. You can read more about their failures in, Analysis: Why Silicon Valley Bank and Signature Bank failed so fast.

Bank Closure Protection

Use Multiple Banks

The first step to protect your money against bank closures, is to open multiple accounts in different banks. The whole don’t put your eggs in one basket mentality. Therefore, avoid keeping all your money in one bank. This reduces your risk and ensures that your money is safe even if one bank fails.

Open Multiple accounts

Banks are insured by the Federal Deposit Insurance Corporation (FDIC). FDIC insures deposits up to $250,000 per person, per account. Therefore, one way to ensure any excess money is protected, is to have multiple accounts. This can be done several ways, including utilizing different banks as discussed earlier.

You can open multiple accounts by holding money in custodial accounts for your children. You can also add beneficiaries to your accounts. Each beneficiary will add another $250,000 each that will be insured.

Credit Unions

Credit Unions may not be insured by the FDIC, but they do have their own form of insurance with the same $250,000 limit. Credit Unions are nonprofit and any money they make is given back to the members.

Also, due to credit unions having lower overhead costs, the credit unions pass theses savings to their customers by offering better products and services. Often these include better interest rates on loans, higher yield savings, and even educational services.

Investing in Real Estate

Lastly, you can invest any excess cash in real estate. This one is after my own heart. Of course, you want to have an emergency fund, but excessive cash in the bank can be better used to grow your money. Stashing that money at a bank, not only loses you money due to inflation, but the bank makes money by loaning out YOUR money. So why not invest yourself and reap the benefits?

Investing your money in real estate gives you a tangible product, and is a great way to build wealth. But what about the housing market crash? Real estate investing is a long term game, and just like stocks, you shouldn’t wait for the perfect time. Check out how I still managed to make money, by Investing in Real Estate Regardless of the Market blog.

Overall, taking any of these steps will help reduce the risk of losing your money in case of a bank collapse.