Bank Runs? What to make of this?


Bank Runs?!? Seems like something out of a depression era movie or something that we shouldn’t even be discussing in 2023. With all the issues in the banking sector recently I want to discuss what has happened, what it means to you, and some possible actions to take in your money management routines.


How the Fed Funds Rate Hikes Affect the US Dollar
This chart shows the Federal Funds Rate going back to 2000

       There have been two major issues that have created the recent issues. First, Interest rates have been historically low over the past decade which means when you place your funds in a bank savings account you weren’t getting paid all that much interest on those funds. The reason for this was because the Fed had set the rates low to encourage borrowing and spending which helps the economy.  Second, the pandemic required the government to step in and release a record amount of money into the economy when we all had to stay home. This caused inflation. Inflation simply means your dollar affords less of the things you purchase everyday like food, gas, and clothes. This can affect your long term financial plan as today’s dollars are not going as far and there is still a need to save and invest for retirement. 


Monthly inflation rate U.S. 2023 | Statista
US Inflation from Feb 2020 to Feb 2023

 So what does all the news about “Banks Runs” mean? There was rumors circulated on social media that caught fire that a particular Northern California regional bank was experiencing difficulties and the customers’ deposits might be at risk. This only exacerbated the issue as all depositors began to call to withdraw their money from the bank. This also spread into other regional banks around the country. The US Treasury has come out and said that any depositor in a US bank is completely protected. All depositors have been made whole in these situations through the government backed FDIC Insurance program. There is a lot more detail on this specific issue and why it happened but that is the gist of it. 


      How to apply this situation to you. Inflation is at an elevated level underscoring the need for your savings to work for you. For your financial plan, this additional area to take into consideration is your cash balances in your bank account. The government has stated all depositors are safe in the US banking system so you don’t need to go out and change your banks. It would be a great idea to take a look at what your bank is paying you to save with them. If you find that you are dissatisfied with that interest payment, reach out to us. Let’s have a conversation about our on platform cash rates, now above 4%* for qualifying accounts and the other liquid investments that we have available to increase the yield on your cash to keep you on track with your financial plan. 

*Rates as of 03/02/2023. Rate shown applies to IBKR Pro clients only. USD credit interest is paid at the stated rate on balances over USD 10,000 in securities accounts with NAV exceeding USD 100,000. Accounts with less than 100,000 NAV will receive USD credit interest at rates proportional to the size of the account.