How to protect your money with banks facing volatility

Credit Suisse bonds showed signs of deep financial distress.

The problems at Credit Suisse raise concerns for people who want to make sure their money is safe.

Days after three US banks failed, the Zurich-based financial behemoth suffered its biggest one-day selloff on record and its bonds showed signs of deep financial distress. As other bank stocks tumbled, Bridgewater Associates founder Ray Dalio warned last week that SVB’s failure was a “canary in the coal mine” that pointed to cracks in the global financial system.

Meanwhile, concerns about the financial health of regional US banks remain. What does all this mean for deposits and investments? Personal finance experts have tips on how to stay calm and manage your money.

Thilan Kiridena, founder and CEO of Capital Elements Advisors in New York, said: “American consumers may face possible consequences such as reduced access to credit, changes in interest rates on deposits or losses in investments due to bank difficulties. “Consumers should therefore be aware of the financial condition of the institutions with which they have a relationship.”

What if my bank fails?

The good news for American investors is that the Federal Deposit Insurance Corporation covers up to $250,000 per depositor in qualified accounts at insured banks. In addition, the US authorities created a new pillar for the country’s banks after the SVB tests, which they believe are large enough to protect the entire country’s deposits.

“If you have less than $250,000 in deposits, you’re covered,” said Mike Bailey, director of research at FBB Capital Partners. “Even if your bank is in trouble, your deposits are in good shape.”

Those who exceed this amount should consider diversifying their deposits by spreading them among several banks, he said.

You can also be strategic about who is listed as a depositor in the account. The FDIC insures up to $250,000 for each co-owner of a joint account, so if you’re married, you can get $1 million in FDIC coverage with a separate bank account in your name, a separate bank account in your spouse’s name, and a separate bank account. joint account.

What is the situation in the Asia-Pacific region?

Many countries in Asia, like the US, have deposit insurance systems. You can check here if this warranty exists in your country.

Here’s a quick overview – but it’s worth noting that each system has its own intricacies, so it’s recommended that you read the details on the various websites. Hong Kong insures all deposits up to HK$500,000 ($63,700) per customer per bank or financial firm, while Singapore insures up to S$75,000 ($55,500) and Malaysia up to 250,000 ringgit ($55,500). Australia has a government-backed safety net of up to A$250,000 ($165,800) per account holder, while South Korea covers up to 50 million won ($38,100). Japan’s deposit insurance system guarantees principal and interest up to 10 million yen ($75,400). China has had a deposit insurance program since 2015 for up to 500,000 yuan ($72,400).

One notable exception is New Zealand, where the government is currently in the process of establishing deposit insurance.

What do we know about potential Credit Suisse clients in Asia?

Indian tycoon Gautam Adani, Japanese billionaire Masayoshi Son, Alibaba Group Holding Ltd. founders and Chinese Gaotu Techedu Inc. Educational software company CEO Larry Chen had a banking relationship with Credit Suisse. Bill Hwang, founder of the collapsed hedge fund Archegos Capital Management, was also a client.

Is my bank safe?

It can be difficult for the average person to wade through complex financial documents to determine their bank’s level of risk, but experts say there are a few simple steps you can take to protect yourself.

Chris Diodato, founder of WELLth Financial Planning in Palm Beach Gardens, Florida, recommends looking at a bank’s credit score that can be found online. Firms such as S&P Global Ratings and Fitch Ratings publish reports. If you’ve seen your bank’s rating drop recently, it could be a bad sign.

Confirming that your bank is FDIC insured is also important, said Jennifer White, senior director of banking and payments intelligence at JD Power. Click here to check if your bank is covered.

What if my bank’s stock goes down?

It’s never fun to watch your bank’s share price plummet, but remember that stock market price action is often based on sentiment rather than real fundamentals.

“A lot of equity volatility doesn’t affect the stability of your bank,” said Matt Miskin, chief investment strategist at John Hancock Investment Management. “Until now, banks have made poor choices in risk management and capital allocation. High-quality banks may not face this problem.”

Miskin said bank stocks will see the possibility of tighter regulatory scrutiny after this episode ends, as well as a changing interest rate environment where lower rates can reduce profitability.

Elliott Pepper, a financial planner and tax director at Northbrook Financial in Baltimore, said there is a risk that declining customer confidence could create a vicious cycle.

“It can create a self-fulfilling prophecy where investors believe the company will lose value, and then, in the case of a bank, the value is actually lost as customers rush to withdraw deposits, forcing the company to realize the costs they otherwise would have incurred.” can ride,” said Pepper.

Should I move my money?

For those with money in smaller, regional banks, it can be tempting to transfer money to a larger, national firm like Wells Fargo or Bank of America. In fact, more than $15 billion in new deposits have been generated in recent days.

However, moving your money around may incur transfer fees. And if you currently have certificates of deposit that carry early withdrawal penalties, it could cost you more to withdraw your money. For example, the commission for withdrawing money on some CDs in the First Republic Bank is up to 15 months of interest.

Changing banks can also cause confusion, leaving you with funds in the wrong places and creating more work for yourself.

One possible reason to move cash is if you can get a better return on it elsewhere. Many savings accounts at traditional banks pay nothing in interest, while high-yield accounts like Goldman Sachs’ Marcus offer annual returns of 3.75%. Series I savings bonds currently offer an interest rate of 6.89% and are backed by the federal government.

“This may be a good time to see if it makes sense to invest those funds elsewhere,” said Seth Mullikin, financial planner and founder of Lattice Financial. “Six-month Treasuries and CDs both yield about 5%. These can be good options for short-term savings.”

Are my investments sound?

Because markets are volatile, financial experts caution against making any drastic changes to your financial plan. However, many investors now expect the Federal Reserve to hold off on rate hikes. That could be good news for the stock market, which took a hit when the Fed aggressively raised rates to fight inflation.

In addition, the ripple effect of the banking crisis could push the economy into recession.

“The chances of a significant slowdown in growth for the rest of the year have increased significantly,” wrote Matt Maley, of Miller Tabak + Co. company’s chief market strategist in a note on Wednesday. “The chances of us being in a recession by the end of the year have risen above 90% in our view.”

(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)

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