Forefront’s Monday Market Update: Is My Money Safe in The Bank?

March 20, 2023

Is My Money Safe in The Bank?

That was the most asked question by all my clients last week. We forgot about inflation, falling stock prices, rising inflation, and the federal reserve’s unknown interest rate decision. All it took was a run on a couple of regional banks.

I always preach about keeping your emotions out of investing, but I never thought it would have to come to the money in the bank as well. That is the money that is being shielded from risk!

Carl Richards once wrote, “Risk is what’s left over after you think you’ve thought of everything.”

Sadly, the real risks are rarely known beforehand, and I can tell you that I did not have a bank run on my financial calamity bingo card for 2023.

Quantifiable vs. Qualitative

The finance industry loves risk that is quantifiable through measures like alpha and standard deviation. We are all aware of the myriad of ratios trying to quantify risk or reward based on risk somehow.

Regular people are more concerned with qualitative risks that are difficult to quantify.

Will I be ok?

Can I reach my financial goal?

Is my money safe?

Good News 

The good news is that no depositor has lost money in an FDIC-insured bank account since 1933. In 1933, the current protections we have in place did not exist. With the collapse of SVB bank, no depositor lost any money this time either, including those over the FDIC-insured limit. Some may disagree, but the US government stepped in not to save the bank but to save the people who held their cash there.

There is no rule on the books that explicitly states that deposits over the FDIC limit of $250,000 will be guaranteed, but it is hard to argue that a precedent hasn’t been set.

Of course, no one can say this for sure until an actual rule is proposed, but I would continue feeling safe having my money in the bank, but only up to the FDIC limit.

Cash Management

For those who have more than $250,000 in cash or are simply uncomfortable with money in the bank, you have options.

Money market funds are not subject to FDIC insurance, but with $5 trillion held in Money market funds, it is tough to imagine a scenario in which the Fed doesn’t step in if there is a run on Money Market funds.

Something that I have done has been to utilize short-term treasury bond ladders for my clients, which allows for cash management but also has tranches of cash coming due each year over the next three years.

Whatever the choice, exploring all options for cash management is a worthwhile exercise to do with your advisor; at the very least, it will help give you comfort and peace of mind on what should be the safest piece of your assets.

Stock market calendar this week:

None scheduled
10:00 AM Existing home sales
2:00 PM Fed interest-rate decision
2:30 PM Fed Chair Powell press conference
8:30 AM U.S. current account
8:30 AM Initial jobless claims
8:30 AM Continuing jobless claims
10:00 AM New home sales
8:30 AM Durable goods
9:45 AM S&P Global flash U.S. services PMI
9.45 am S&P Global flash U.S. manufacturing PMI

Most anticipated earnings for this week:

About Amit: I am a first generation American, the son of a working-class Indian family, and I lived through my parents’ struggle to find their place in this country, to put down roots that would sustain them as well as their children in a new land. As they encouraged me to excel in school and fostered my hobbies and interests, I was keenly aware of the dynamic between them. I understood that there was a difference between where they came from individually and where we were now. They worked hard in their individual capacities, but they weren’t always on the same page about financial issues – and that can make or break a family’s future. I didn’t know it at the time, but this laid the groundwork for my passion towards financial services and helping families succeed.