With the recent collapse of Silicon Valley Bank, and bank runs in the headlines… you might be feeling a little uneasy about your savings. Here is a list of things that could put your savings at risk and how to avoid each problem.
You have more than $250,000 in one account.
The FDIC insures bank accounts up to $250,000. Having more than $250k in one account puts you at risk of losing funds if your bank goes out of business. It is important to diversify your savings into multiple accounts and banks. Making sure all of your money is FDIC insured is an easy way to protect your money. Without FDIC insurance your money could be at risk.
You have all of your money in a single bank.
If a bank goes out of business, the FDIC has to pay out as soon as possible. But in the meantime you may lose access to all of your capital. This can cause you to miss payments, and well make it hard to live your day to day. Banking with multiple banks will give you the added protection. It will also give you a place to cash your paychecks and keep living your day to day.
Your accounts aren’t insured.
Some people just assume that all accounts are insured. While the vast majority are, there are some exceptions. Brokerage accounts and cash management accounts are not always FDIC insured. Even credit unions are typically not covered by FDIC insurance. It is important to check all of your accounts and make sure that you are covered by FDIC insurance and how much. If you have a brokerage account with cash sitting in it, you may want to move that cash into a FDIC insured account. It is important to note that stocks are not insured and always run the risk of going to zero. It literally cost nothing to insure your savings, but could cost you everything if you aren’t insured.
You are getting a low yield.
Inflation is the invisible tax eating away at your savings. Many banks pay an interest rate that is lower than one percent. With inflation hitting 6.5% in 2022 that would be a loss of $650 on a $10,000 account. Having your savings stored in a CD or a high-yield savings account can help protect you from inflation. With interest rates climbing and inflation at record highs, now is the perfect time to switch. Check out our savings guide to find and compare CDs, high-yield accounts, money market accounts, and more. Click here for Savings Guide.
Your savings is stored in checking accounts only.
Checking accounts are a terrible place to store your savings for two reasons. 1, Zero to low interest. 2, you could lose all or some of your savings to fraud. Protection on checking accounts varies by bank and often requires you to catch the fraud ASAP. If someone gets access to your debit card or checking account and drains it; the bank might not have to cover everything that is lost. This is perhaps the strongest argument for using credit cards. Having a checking account is great for everyday spending, but not for savings. Keeping your savings in a savings account, CD, or other dedicated account will give you a better yield and offer more protection. Keeping your savings in a separate account will also help prevent you from spending your savings.
You aren’t adding to your savings.
The cost of living is high and going up. That means your savings should be growing… not sitting stagnate. Some people build a savings and then stop contributing to it. Habits are what make us healthy, wealthy, and wise. By consistently adding to your savings, it means you are living with a surplus each month. Learning to live on less than your income means you will get ahead much faster and develop the right habits for a financial stress free life. You can easily setup direct deposits into your savings account to automate this process.
Try using an app like PocketSmith to budget and find out how much you can save each month.
Your savings is under your mattress.
Keeping your cash in a sock underneath your mattress may sound like a good idea. I mean, why trust the banks? The answer is the banks are insured and your house is not! I’ve heard of so many cases of lost cash, we could do a segment on it. Angry spouses, shifty family members, hungry fur children, and on and on. Once that cash is gone… it is gone. Don’t forget about inflation. Your cash is safer in a bank than it is in your closet. Why risk it?
All of the things on this list are easy to fix. With all of the negative news, it is easy to get overwhelmed. Don’t let it take from your happiness. Be prepared and remember your goals. If you like this content sign up for the Capital Nomads newsletter.