Last week, concerned customers pulled their deposits from Silicon Valley Bank and Silvergate Capital in California after both banks reported major losses on their balance sheets. This triggered another bank run at Signature Bank in New York. All three banks were heavily exposed to the tech sector, which has struggled this year, in part, because higher interest rates make it tougher for these companies to borrow cash and pursue long-term growth strategies.
While regulators, political leaders, and those of us in financial services are still gathering details, initial reports point to poor institutional management and unbalanced investments as the causes for these collapses. The Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) have all worked to protect customers and stabilize the broader banking system.
I know many retired folks in our audience have the same question right now: Is my money safe?
One of our primary concerns at Keen Wealth Advisors is ensuring that our clients have adequate cash reserves for immediate and short-term needs. For those who are retired, we aim to keep 3-5 years of their income needs in more stable fixed income and cash equivalents. In this blog post, I’ll discuss the various options we use to achieve this goal, including the bank deposit sweep, money market accounts, and short-term fixed-income ETFs.
Bank deposit sweep program
This can be an excellent, convenient, low-risk option for immediate cash needs. This program automatically transfers uninvested cash balances from an investment account into a bank deposit account, typically FDIC-insured, earning a higher interest rate than traditional savings accounts.
Money market accounts
We use money market funds for individuals who have short-term cash needs. They are considered low-risk, and the interest rate is typically higher than traditional savings accounts, making them a great option for short-term cash needs.
Short-term fixed-income ETFs
For the remaining portion of cash needs, we utilize short-term fixed-income ETFs that invest in government and corporate bonds. These ETFs offer low-risk exposure to short-term bonds with maturities of less than 5 years. They are less sensitive to interest rate changes than long-term bonds, providing a stable source of income with a lower degree of fluctuation. Investing in a mix of government and corporate bonds can help diversify a portfolio, spreading risk across different issuers and industries, and reducing exposure to any one specific company or sector.
Long-term cash options
When it comes to advising on where to hold cash balances, we typically recommend high-yield savings accounts, money market accounts, certificates of deposit (CDs), Treasury bills, and online savings accounts. These options offer a range of interest rates and terms, which allows people to choose the best option for their individual financial situation.
• High-yield savings accounts: High-yield savings accounts typically offer higher interest rates than traditional savings accounts and are FDIC-insured, making them a safe and low-risk option for earning a return on cash balances.
• Money market accounts: Money market accounts are similar to savings accounts but typically offer higher interest rates and also allow you to write checks or use a debit card to access your funds.
• Certificates of Deposit (CDs): CDs are a type of savings account that typically offer higher interest rates than savings accounts or money market accounts. They are FDIC-insured, making them a low-risk option, but require you to keep your funds locked up for a set period of time.
• Treasury bills: Treasury bills are short-term government bonds that are backed by the full faith and credit of the U.S. government. They are considered very low-risk and offer a low but reliable return.
• Online banks: Online banks are another great option for earning a higher yield on cash balances. Online banks typically offer higher interest rates on savings accounts and other deposit products because they have lower overhead costs than traditional brick-and-mortar banks. Additionally, many online banks are focused solely on digital banking, which allows them to offer innovative and user-friendly platforms.
The Federal Deposit Insurance Corporation
It's also important to ensure that any physical or online bank you choose is FDIC-insured. The FDIC provides insurance to protect depositors in case an insured bank or savings institution fails. If a bank is FDIC-insured, it means that your deposits are protected up to $250,000 per depositor per insured bank, making it a safe and low-risk option for those looking to earn a higher yield on cash balances.
It is important to note that deposits held in different ownership categories are separately insured, up to at least $250,000, even if they are held at the same bank. This means that a revocable trust account, which includes living trusts and payable-on-death accounts, with one owner and three distinct beneficiaries, can be insured for up to $750,000.
We’re here to help!
We believe it's essential to ensure that our clients have adequate cash reserves for immediate and short-term needs. And we also want our clients feel confident that their savings and investments are secure. If you have any questions about your accounts, your financial plan, or what’s happening in the broader banking system right now, please don’t hesitate to contact my team at Keen Wealth.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.
The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.
The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019 and the second edition under Financial Risk Management on October 26, 2022. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities.
The Steve Sanduski Advisor Network, Belay Advisor, LLC and other third-party contributors to our blogs and podcasts are not affiliated with Keen Wealth Advisors.
For additional details on Keen Wealth Advisors, please visit https://www.keenwealthadvisors.com/important-disclosures.