EP204: The Startling Truth About Our Money in the Bank

APPLE PODCASTS | SPOTIFY

 

Hello there…

Are you ready to hear some surprising truths?  

Because we’re bringing you a hot take on a widely trusted establishment for many people: THE BANK. 🏦💵

See, banks are not nearly as safe as you’d think, and we’re here to shine a light on the risks and possible outcomes of trusting them with your wealth!

We just can’t sit back and watch people risk their financial futures without knowing the truth. 

But listen. 

We’re not here to spread fear…just FACTS. 🙌

So, we’re sharing the 3 main bank practices that are putting your money in jeopardy and why. 

This is some eye-opening stuff, we know. 

But once you see what’s really happening beneath the seemingly safe disguise of banks, you can start taking simple steps to protect your wealth and future. ✨

Changing your savings strategy now could save you TONS of money down the road.

Hey guys, do you ever think about how safe your money in the bank actually is? 😬😬

If you’re like a lot of us, it makes sense to simply assume that once you place a deposit in the bank, your money rests safely there, ready for you to access at any time.

But nothing could be further from the truth.

Ever since the SVB collapse in the spring of 2023, a lot of us have been questioning how safe our money in the bank really is. 

Most importantly, how safe is YOUR money? 💵

Our unsettling revelation will get you to start questioning our financial security and future. 

But it doesn’t have to be mysterious!

On today’s episode, we’ll uncover three typical bank practices that could jeopardize your money.

Stick around till the end for some valuable tips on safeguarding your assets.

But first, have you ever noticed the bumps on a camel’s back? 🐪

They’re not just decorative—camels use them to store water and survive the desert when there’s no drink available.

Think of those bumps as similar to the ancient temples in 5th-century Rome.

Just as a camel’s hump holds water for dry days, these temples served as secure spots for people to stash their extra coins. 

It was a safer option than keeping money at home, where it was more vulnerable to theft.

Breaking Down Banking

To begin with, it’s important to understand how the banking system works.

It’s actually a little bit like heading to your favorite 🍝🫒 Italian restaurant and sharing a 🍕 pizza.  

You see, when you put money in the bank, the bank will only save a few slices for you, lending out the rest of the pizza to others (with interest, which is how they make their money).

At the end of the day, everyone keeps a piece of the pizza, or so they want you to believe. 

Is this news to you?

Let’s think about how it works using some pretty basic math. Our modern banking system operates off this thing called fractional reserve banking. 

The way fractional reserve banking works is that banks are actually only required to keep a certain (and very small) amount of your deposit on hand and available for your withdrawal.

Let’s look at it this way – if you deposit $100,000, all your bank is going to keep on hand is around $10,000. 😣😣

👉 The rest of that $90,000 gets loaned out, at interest, providing goods and loans and products and all kinds of things for other people, which can end up with a lending power of $1,000,000 for the bank.

Unfortunately, your hard-earned money is out there working for other people, making them money, not you.

Sure, you might get a few dollars in interest, now around 0.07% if you’re lucky. 

Keep in mind too that since your bank isn’t just stashing cash like Gringotts for all you Harry Potter fans, this means that they are lending your same cash out over and over. That same cash that you are earning fractions of a percentage in interest is being charged to a loan at rates of 7-8% for a home mortgage, or even higher around 20%+ for credit card balances. 

If you’re thinking, this all sounds great, think again. This system is all fine and dandy until something happens… where too many people come in all at one time to withdraw their money. 

As you can imagine, since they only have 10% or so of your deposit on hand, this causes major problems.

Eventually, if the situation isn’t managed properly, they run out of money 🤯🤯, which is exactly what happened with Silicon Valley Bank and Signature Bank. 

Do you remember the scene in 🎥  It’s a Wonderful Life where George Banks gets swarmed by a mob of angry people at the bank demanding their money?

Well, this can and does still happen in modern times.

▶️ So how secure is your money really?

FDIC Financials

Recently Nan and I took a backcountry hiking trip to Yosemite, one of the most naturally stunning places on earth.

Thinking I was planning ahead, I packed a bunch of KT tape for blisters.

Unfortunately, between the two of us, each having two feet 🐾, we ran out quickly, well before the end of the trip.

This blister situation is alarmingly similar to the current money conditions we are operating under the FDIC. 

You see, the FDIC (Federal Deposit Insurance Corporation) protects bank deposits up to a certain amount, which ensures that the average person doesn’t lose all their money in the rare instance that a bank does fail. 

The FDIC also helps regulate banks and keep them in check, stepping in if there is an issue or if a bank fails, all of which help keep the banking system stable because people trust that this system will work and their money will be safe. 

BUT… did you know that the FDIC actually only has about 1% of all the cash deposited in qualified insured accounts? 

This means that when you read or hear that about 1% of all the cash deposited is in qualified insured accounts, it refers to the actual funds available in the FDIC reserve to cover insured deposits. 

The FDIC operates through premiums paid by the banks it insures. These premiums contribute to the Deposit Insurance Fund (DIF), which the FDIC taps into if a bank fails.

But you’re totally insured, right?

Kind of. 😳🥵

If you have substantial savings or investments beyond the $250,000  limit, you’re going to be in a tough spot… 

If a bank were to fail, deposits exceeding this limit could be at risk.

And this doesn’t just hold true for individuals either, it applies to businesses, which typically have deposits greatly exceeding this amount. 

On top of that, if you have multiple account holders, while the $250,000 coverage applies to each depositor, if someone has several accounts totaling more than this limit, the excess amount is not covered. 

So please don’t just assume that the FDIC has your back. They might, but they might not too. 

Bleak Bonds

Okay, but you’ve heard about how safe bonds are, so maybe you should invest in those.

Think again… they’re not so safe anymore. 

The practices banks followed for 20 or 30 years with bonds have taken a huge hit.

It’s led to massive losses for these banks, putting their financial stability at risk.

So guys, just to clarify, we’re not suggesting emptying your bank accounts right away.

It’s important to keep enough for your everyday needs.

However, relying heavily on your bank for a large portion of your savings might not be the best move.

If the bank 🏦 were to collapse, having too much there could put you at significant risk.

Again, we’re not saying go and clear out your bank account right this second.

It’s smart to keep enough for your day-to-day expenses. 

But think twice about stashing a huge chunk of your savings in the bank.

That way, if the bank hits a rough patch, you won’t be taking on too much risk.

Now that you’ve learned the startling truth about your money in the bank, check out this episode, so that you can understand why investing in illiquid assets is a good idea.

According to the recent US Bank Outlook Survey by S&P Global Market Intelligence, bankers are more hopeful about loan growth. Yet, they remain worried about the credit quality of commercial real estate.

💹 2024 Rental Trends: Housing Insights

🧼 Bed Bath & Beyond Spaces: Hot Real Estate Moves

⭐ Anticipating Rate Cuts: Investors’ Insight

💲 Fannie Mae: Rent Payment Program Extended