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Cash and Your Bank

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Updated March 16, 2023

When writing this, U.S. Bank Regulators took over Silicon Valley Bank and Signature Bank. First Republic Bank gets additional funding from the Federal Reserve and JPMorgan Chase and other banks to rescue them. 

Starting on Friday, March 10th, the bank situation has deteriorated. You might be wondering what to do. What can you do to provide more security for your cash? 

We are continually monitoring the ever-changing situation. In the meantime, here are some things that can be done to securely manage your cash:

1. If you have less than $250,000 in your bank account, you don't have to worry; your money is FDIC insured up to $250,000 per customer, not per account. Although, it is helpful to have a 2nd banking partner to fund critical operations such as payroll in the case of a bank failure. I am more concerned about small regional banks. The larger banks, such as JPMorgan Chase and Bank of America, are less likely to fail. As a reminder, we saw in the financial crisis of 2008 that some banks might be "too big to fail." The government tends to bail out big banks. We can't depend on the government to bail us out every time, but if a large bank like JPMorgan Chase fails, we will have much more significant economic problems. 

2. If you have more than $250,000, you could open a 2nd bank account for savings. Right now, banks are offering an interest rate of greater than 4%, and they keep rising. So look for reasonable interest rates at a stable bank. You do not have to get a three- or six-month CD. The downside of this would be that if you have, for example, $1 million in your account, you would have to spread your money out with four different banks. 

3. My favorite solution is opening another money market mutual fund investment account. I am not talking about a money market deposit account but a separate account that invests in safe securities.

Recently, with one client, we opened an investment account with JPMorgan Asset Management. We started investing in low-risk mutual funds such as a U.S. Government Money Market Fund. We can buy and redeem shares in these funds quickly. The money moves back and forth from the investment account to the operating account in about an hour. The likelihood of losing money in these safer securities is low as they invest in high-quality, short-term securities issued or guaranteed by the U.S. government or by U.S. government agencies and instrumentalities. You can also set up an automatic sweep into these accounts. Also, these accounts pay very attractive interest rates. 

4. If you want to stay with your bank, there is an option to open an Insurance Cash Sweep (ICS), which breaks up your money into smaller chunks at different banks, so it is FDIC insured. There is a fee, and it probably will decrease your interest some, but worth asking your banker about this option if you don't want to open an investment account. It does pay interest income which is better than keeping it all in your operating account. 

5. Opening a new bank and investment account can take some time. There is paperwork such as the application, signature cards, and accessing online accounts. You have to provide legal entity documents and ensure proper control and segregation of duties. In the middle of this type of situation, it might take longer than you want. It doesn't hurt to start this process. 

6. A good CFO can help connect you to the right bankers and work with setting up the different bank accounts needed. For example, at Bender CFO Services, we sometimes refer clients to trustworthy bankers, and they set up everything. In other cases, we are involved more intimately as a signer or are given access to key accounts to provide another layer of control through the segregation of duties. 

A situation like this can be very unsettling. So as we continue to monitor the changes, we want to keep a level head and not overreact, but we also want to ensure we provide the best guidance for our clients to manage their cash at the best interest rates. 

If you're feeling uncertain about the current state of the banking industry, don't worry. There are steps you can take to protect your cash and provide more security. At Bender CFO Services, we can help you navigate these uncertain times and connect you with the right bankers to set up the different bank accounts you may need. Don't wait until it's too late; contact us today to discuss your options and ensure your financial security.