03/12/2023
In light of Friday’s news regarding the collapse of Silicon Valley Bank and the resulting frenzy and insecurity in the banking system, we wanted to provide some tips, answers to questions, and a helpful article. Note that these are our own suggestions and are certainly not foolproof. However, we know many of you are seeking direction and our goal is that this provides a bit of a helpful framework.
Question: Should I pull out all of my cash from the bank?
o Answer: I wouldn’t suggest this.
While we are definitely all feeling insecurity in the banking system, our world is built on e-commerce, which makes a cash-only strategy incredibly inefficient and nearly impossible. In addition, lenders need to see seasoned bank balances to approve any potential future financing arrangements. Also, there is an inherent risk of having all of your cash outside of the bank, for obvious reasons such as theft, fire, loss, flood, etc.
However, I do suggest having cash on hand to weather a potential bank failure as well as an additional form of engaging in e-commerce. Here is my suggested breakdown:
Cash On-Hand (at home, in a locked safe)
• Amount: 1 month of living expenses.
• Reason: Should your bank collapse, the FDIC (discussed in more detail below) will need time to recover your access to your bank funds. Though the amount of time should be relatively short, having 1 month in cash will give you enough time to weather this effectively.
o Side-note: I do always suggest having 6 months of living expenses set aside. With the above scenario, I would suggest keeping 1 month in cash at home and the remaining 5 months in a separate savings account with your bank.
Available Credit Card
• Reason: Should your bank collapse, your debit card will likely not work as well. Should you need to make non-cash purchases, such as paying for things electronically, having a credit card available will help facilitate electronic payments during the time waiting for the FDIC to recover access to your bank funds.
Question: If I don’t pull out all of my cash, is it safe in the bank?
o Answer: it should be.
BUT, you need to understand the FDIC Insurance Limits. I attached a great article that provides a quick overview of how this works. Essentially, your protection limit is $250,000 per account type, per bank. Major Point: if you have more than $250,000 in an account, you need to diversify this (open separate bank accounts at separate banks, engage in different account ownership structures, etc.). See full article for suggestions.
o Tip: Understand what does NOT fall under the FDIC Insurance Limits. Here is the general list:
Stock investments.
Bond investments.
Mutual funds.
Crypto Assets.
Life insurance policies.
Annuities.
Municipal securities.
Safe deposit boxes or their contents.
Biggest takeaway:
We individually have no control over a bank collapsing, but we can make sure we are set-up for success to weather the storm should one occur. By having our capital diversified enough to be protected within the FDIC insurance limits and by ensuring we have a credit card and cash-on-hand, we can keep ourselves relatively unharmed should we experience a bank failure.
As always, White Harbor Accounting Solutions has a goal of providing a safe harbor for your business (and personal) financial situation. Hopefully this helps calm any fears you may be having from the stormy seas of the banking industry, but please feel free to call or email if you want to discuss your situation in more detail. We are here to support.
The closing of Silicon Valley Bank may have you wondering about FDIC protection. Here’s what you need to know.
