Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Want To Earn A Safe 5% In Fixed Income? Buy Preferred Stocks - 24th April 19
Can Gold Price Rise Without a Rate Cut?  - 24th April 19
Silver’s Next Big Move - 24th April 19
How Can a College Student Invest Wisely? - 24th April 19
Prepare For Unknown Stock Market Price Action As New Highs Are Reached - 23rd April 19
Silver Plays a Small but Vital Role in Every Portfolio - 23rd April 19
Forecasting 2020s : Two Recessions, Higher Taxes, and Japan-Like Flat Markets - 23rd April 19
Gold and Silver Give Traders Another Buying Opportunity - 23rd April 19
Stock Market Pause Should Extend - 21st April 19
Why Gold Has Been the Second Best Asset Class for the Last 20 Years - 21st April 19
Could Taxing the Rich Solve Income Inequality? - 21st April 19
Stock Market Euphoria Stunts Gold - 20th April 19
Is Political Partisanship Killing America? - 20th April 19
Trump - They Were All Lying - 20th April 19
The Global Economy Looks Disturbingly Like Japan Before Its “Lost Decade” - 19th April 19
Growing Bird of Paradise Strelitzia Plants, Pruning and Flower Guide Over 4 Years - 19th April 19
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Are Your Savings and Investments Safe From Bank Failures?

Personal_Finance / Credit Crisis 2008 Feb 28, 2008 - 01:01 PM GMT

By: Christopher_Laird

Personal_Finance

Best Financial Markets Analysis ArticleTime to ask a few good questions about your Interest rates - I think its time to start asking some basic questions about what we all think we are doing financially. Is what we do appropriate for the times? Or, more to the point, do we view risk appropriately?

Do we live in a time where we might just see our personal banks, or financial institutions such as money market funds, MMFs, fail?


We might want to start asking questions about our financial reality, times, and our own assumptions about what is safe or not safe. Interest rates are one key.

Many of us have some gold. Gold is considered money par excellence, has no particular guarantees on it, other than its atomic weight. People world wide have a basic instinct that considers gold and silver money. The trait is so deeply ingrained that it has survived over thousands of years, even as nations failed, currencies failed, and people lost all their savings. But gold offers no interest. So, for our accounts that do offer interest, how should we look at that?

I think that the time is right to start asking ourselves if the financial world we live in is as safe as we might think. Let me make the point like this….

Suppose that you found out that your financial account was on the verge of being locked – like we hear some money market funds have had to do – to stop people from fleeing headlong and then the fund has to sell assets at fire sale prices. What would you do? Well, I'm sure that you would drop everything and move that money out before the account was frozen. But how can one find out before that happens, or is imminent?

It's a basic example, but, rather poignant today. Poignant now. I drove by a small bank recently and they were offering over 6% on a checking account! With a sign out front.
That is so high, that one has to ask himself how that bank can offer that interest rate, when that is about what 30 year fixed rate mortgages are at?

Or, more to the point, doesn't that show how urgent that bank is to get deposits?

We just put out an alert about this phenomenon to our readers. We suggested that, if you are being offered a rather high interest rate by your financial institution, that maybe you should consider that a warning sign. This applies to banks, broker accounts, and MMFs.

We lament the fact that a person needs to be able to ‘read tea leaves' to ascertain if his money is in a safe financial account.

I really think this issue, of whether your financial institution has to offer high interest to attract deposits, is more about how urgent their needs are. The issue becomes one where we all need to reassess risk – become risk averse, and yes, if we see some high interest rate like that – to read the tea leaves.

This is all obvious of course. But, it's the obvious things that kill. 

One needs to be able to ask questions at the right time. One cannot just blithely go forward oblivions of what is happening around him, and expect to keep his savings.

I remember reading about the Great Depression in the 1930's in the US, and there was a cartoon out. A ‘prudent squirrel' asked a man in a park why he had lost his savings. He asked the man, ‘why didn't you save for a rainy day?'

The man replied ‘I did.'

This cartoon was put out when there was a rash of bank failures in the 1930's before there was deposit insurance like the FDIC. That cartoon was one reason we chose the name PrudentSquirrel for our newsletter.

But, in any case, I just read on a gold forum about a guy who said that he had been a customer in two bank failures in the last 40 years, one in the S and L crisis in the 90s, and had to do the FDIC thingy and what a pain that was, to get his money back.

Ok

So, now, we read about the FDIC is on a hiring binge. And also there are various news comments hither and yon, where it's expected that we are going to be seeing a good number of bank failures as the credit crisis expands, and eventually drags them under. This will affect not only banks but money market funds and many financial accounts.

If you are following the bank crisis of late, and realize that the Fed and the ECB alone have pumped out an astounding $2 trillion of help to financial institutions since August 07, that maybe we all ought to be double checking the status of our financial accounts, and if – I think this is particularly important – our accounts are offering a bit higher interest than the norm, to consider this a risk profile.

If your bank, (I would say this applies to most countries right now) offers something like 6% on mere checking accounts, or CDs even, maybe you ought to consider that a risk profile.

In any case, we ought to all be asking questions about how safe we think our financial accounts are, and if they offer higher interest than the norm, to consider looking around for saver havens. You need to find out what the going interest rates are for your area.

Now, I would consider 4% a maximum interest rate for a sound institution, and that is just a general observation based on 30 year fixed rates being about 6%. I think you might find that to be the case in many countries right now, ie 4% max.

I think this level would be a high rate of return for just about any country in the world now, because money is so fluid. But the key issue is that you need to find what interest rates are in your nation, and what is competitive. If you find that your accounts have higher interest than that norm, you ought to consider that a fairly high risk profile.

By Christopher Laird
PrudentSquirrel.com

Copyright © 2008 Christopher Laird

Chris Laird has been an Oracle systems engineer, database administrator, and math teacher. He has a BS in mathematics from UCLA and is a certified Oracle database administrator. He has been an avid follower of financial news since childhood. His father is Jere Laird, former business editor of KNX news AM 1070, Los Angeles (ret). He has grown up immersed in financial news. His Grandmother was Alice Widener, publisher of USA magazine in the 60's to 80's, a newsletter that covered many of the topics you find today at the preeminent gold sites. Chris is the publisher of the Prudent Squirrel newsletter, an economic and gold commentary.

Christopher Laird Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Nell Graham
12 Jan 09, 18:02
FDIC

Does anyone know how long would it take to get your money from FDIC if a bank went under?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules