Silicon Valley Bank’s recent collapse has triggered concerns among depositors about the safety of parking large sums of money in a single bank. Although the FDIC has assured depositors complete protection, wealth advisers suggest that strategic cash management could be wise. While banking legislation dating back to 1933 offers coverage of up to $250,000 per depositor in qualified accounts at insured banks, the fear of a potential ripple effect across other financial institutions cannot be ignored. As such, depositors may consider diversifying their cash across multiple banks or exploring alternative haven options.
According to Jeremy Keil, a financial adviser at Keil Financial Partners in Wisconsin, deposit insurance limits were among the top concerns for savers in 2008. Multiple financial advisers were interviewed, and they suggested that instead of opening an account at a different bank, savers should consider simpler and quicker ways to increase their FDIC-insured deposits at their existing bank. The FDIC covers up to $250,000 for individual accounts and up to $250,000 for each co-owner of a joint statement.
By opening your bank account and your spouse’s bank account, you can receive $1 million of FDIC protection.
Parking cash at another insured bank is a great way to hedge risk for single people or those without joint accounts. Thilan Kiridena, the New York-based founder of Capital Elements, says customers of smaller regional banks should mainly diversify if their cash balances are over FDIC limits. According to Liz Miller, president of Summit Place Financial Advisors in New Jersey, short-term investments benefit from higher interest rates. The government offers a full guarantee on three-month Treasury bills, which are temporary and still have excellent rates. Instead of a bank account, consider a three-month Treasury bill.
Because of the turmoil in the banking sector, Miller said there’s a good chance the Federal Reserve will slow down its rate-hiking path. Therefore, she can take advantage of the higher interest rates by investing in short-term Treasuries and bonds before the Fed slows down. Having a plan is critical, but advisors warn against going overboard in a situation confined to a few regional banks with considerable tech exposure. “This is not a foreshadowing of the rest of the economy,” said Marc Scudillo, managing officer at EisnerAmper Wealth Management in New Jersey. “Diversification and selection are essential. Additionally, growth may slow down. However, it’s important to put it into perspective with 2008.
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