By W.B. King
The failure of the tech-catering Silicon Valley Bank (SVP), with more than $200 billion in assets, is a striking example of a once-trusted banking institution going belly up. The New York-based Signature Bank, with roughly $110 billion in assets, also failed due to what the FDIC deemed was “poor management” — a similar finding the Federal Reserve had when investigating SVP’s demise — lack of internal risk management.
While President Joe Biden stated the following on March 13, 2023, “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” the noted financial catastrophes, among others, are causing customers to question the viability of their financial institutions, according to a recent Forbes Advisor report.
Despite 68% of respondents saying they felt “confident” in the government’s ability to “prevent a banking crisis,” 78% of survey participants “expressed concern” that the U.S. is headed for a financial recession similar to the late 2007 to 2009 Great Recession.
Fear of Losing Access to Funds
Commissioned by Forbes Advisor and conducted by market research company OnePoll, in accordance with the Market Research Society’s code of conduct, the online survey polled 1,000 U.S. adults with active bank accounts. Data was collected from Mar. 23 to Mar. 28, 2023.
“Fifty-eight percent of consumers who bank with small to mid-sized financial institutions are considering moving their money to a larger bank,” the report stated. “At least 48% of consumers think it’s worth paying higher monthly account fees for a bank account at a more established bank.” These findings were consistent from Gen Zers to baby boomers with 39% of respondents saying they were “very concerned” and roughly 38% noting “somewhat concerned.”
Perhaps more troubling, 75% of respondents “expressed concern about losing money or access to money” they’ve deposited at a financial institution. “A whopping 91% of respondents with household incomes of $150,000 or more said they’re concerned about losing money or access to their funds,” the report stated.
Moving Money
For the noted demographic ($150,000 or more in household income), the report found that 84% of Americans are considering moving their money to a larger financial institution.
“Conversely, only 25% of those who bring home less than $30,000 and bank with a smaller institution are thinking about transferring funds to a bigger bank,” the report noted.
Nearly half of those polled said they would pay higher monthly account fees for “superior checking accounts” at a “more established” bank. Many of those polled also believe a financial institution’s length of time in business indicates the level of security. “When asked which factor was most important when determining trust in a bank, the most popular response was longevity (25%), followed closely by brand recognition (23%),” the report found.
As a result of these concerns, the top five financial planning habits reported by those polled were: saving more (60%), spending less (56%), following a budget (46%), investing more (44%) and investing less (42%).
Forbes Advisor’s “recession-proof” financial advice includes:
Earn a high annual percentage yield (APY). “Keep your cash in a high-yield savings account—many charge no fees and offer APYs up to 5.00%, which can help protect against rising inflation. For funds you don’t need to access right away, consider opening a high-yield CD (certificate of deposit) — this will lock in a guaranteed rate, even if interest rates fall in the future.”
Consider a CD ladder. “This savings tactic involves opening multiple CDs with staggered terms. You could open a six-month, 12-month and 18-month CD to take advantage of higher promotional rates on longer terms and still regain access to cash every six months.”
Don’t exceed FDIC limits. “Keep your deposits in an FDIC-insured account or CD, and don’t exceed the $250,000 limit per account ownership category. Account ownership categories include single, joint, certain retirement accounts, revocable and irrevocable trusts and employee benefit plans. If you exceed the limit, look at ways to insure excess deposits.”
