How Banks Work and the Protection of Your Money Asset Strategy

With all the recent bank closures, many people (retirees especially) are worried about their savings. Is your money safe?

How does a bank store money?

It will be useful to explain how your bank stores your money first. When you put money into your bank, they don’t keep that money. Usually, they will take the money you deposited and use that money for loans or mortgages. By law, banks must keep at least 10% of the money stored in them on hand. This means that 90% of the money stored in most banks is not available to them as cash.[1]

What problems can this cause?

Here is an example: let’s say a bank has 1 billion dollars stored in all its accounts. 10% of 1 billion dollars is one hundred million dollars. So, this one hundred million dollars is how much the bank can give out on a given day in cash. If you needed to withdraw $10,000 from that bank, that withdrawal would only be a very small fraction of the cash available to the bank. So, you wouldn’t really be causing any problems if you withdrew that amount.

Problems with this system appear when too many people start taking out their money all at once. If people are concerned that a bank may go under, then they may all race to the bank to pull their cash from it.

In the example we mentioned before, if 15,000 people all took out $10,000 at the same time, the bank would not have the cash to pay all of them. The bank may have 1 billion dollars, but only one hundred million of it is in cash at any given time. It would need to pay all those people one hundred and fifty million dollars in cash, and it doesn’t have that. This situation can cause a bank to fail.[2]

What can you do to protect your accounts?

In order to protect yourself from a collapse like this, you can put your money into banks that are insured by the FDIC or the NCUA. If your bank has this kind of insurance, it means that, even if the bank fails, you will get your money back up to $250,000 per owner of the account. The number is $500,000 for a married couple with a joint account.[3]

What next?

If you are looking for financial guidance and strategies that may help protect you from events like these, reach out to us for a complimentary review of your finances.



Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor.

The above content is for informational purposes only, does not represent legal or tax advice does not indicate suitability for any particular investor and does not constitute an offer to purchase or sell investments. Please consult the appropriate professional regarding your individual circumstance.

Asset protection plans should be developed and implemented well before problems arise. Due to the fraudulent transfer laws, asset transfers that occur close in proximity to the filing of a lawsuit or bankruptcy can be interpreted by the court as a fraudulent transfer. Proper structuring of these assets is imperative please seek proper legal and tax advice prior to engaging in re-titling/structuring of any assets. Please note that laws are subject to change and can have an impact on your asset protection strategy.

Advisory services are offered through Asset Strategy Advisors, LLC (ASA). Securities are offered through representatives licensed with either Concorde Investment Services, LLC (CIS), member FINRA/SIPC, or RCX Capital Group, LLC (RCX), member FINRA. Insurance is offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS and RCX.

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