As Safe as Money in the Bank: Is It Really?

bank vault with cash

“As safe as money in the bank” is a phrase that has been used for decades to describe something that was absolutely safe. Bank vaults once had a reputation for keeping money safe, and since the 1930s and the introduction of deposit insurance, money in the bank has been seen as nearly a sure thing. But is money in the bank really that safe?

The recent bank failures in the US have led many Americans to question how safe their money in the bank really is, and whether money in the bank is really what they want. In response, many have begun moving their money out of banks and into other assets. But will the moves they make gain them greater safety?

Where Money Is Moving

One place money is moving is to non-bank cash-equivalent investments. Right now total cash assets under management has increased to $7.8 trillion. Compare that to other figures, such as the $6.9 trillion Americans hold in 401(k) plans and you’ll see why that’s such a tremendously large figure.

Money market funds are one of the most popular cash accounts right now, with nearly $5.5 trillion in them, a 14% increase from the beginning of February. Lest you think that’s some sort of natural growth, this same period last year (beginning of February to beginning of July) actually saw a small decrease in the amount of money held in money market accounts. And overall, money market funds have 20% more money in them than a year ago. That’s a clear sign that Americans are worried about the safety of their money in bank accounts and are looking for a safer place to park their cash.

Bank deposits were already declining at the beginning of the year, and overall bank deposit levels are about 5% lower than they were a year ago. And while the conventional narrative was that large banks benefited from money flowing out of smaller commercial banks, the reality is that aside from a small blip in May, bank deposits at large banks are down about 6% since last May. And much of that money is likely to have flowed into money market funds and other cash investments.

But while money market funds have a reputation for safety, it’s important to remember that there’s still risk even with these supposedly safe investments. During the 2008 crisis, the Reserve Fund broke the buck, causing a run on money market funds that terrified the financial system. If you thought bank runs were scary things, just imagine how bad a money market run could be.

That $7.8 trillion could be far more liquid than the trillions held in bank deposits, particularly if it’s held by people who are actively managing their money. Trillions flowing out of money market funds in the blink of an eye could severely upend the financial system.

Are There Other Alternatives?

The question most people have is, what kind of alternatives are there to money market funds? Many people with money in 401(k) plans may only have money market funds available to them as a safe haven for their retirement savings.

Even people with more investment options may be wondering what kind of assets can help protect them if they decide to move their money out of money market funds. We’ve seen just how quickly money moved out of bank accounts into money market funds, and money can move out of those money market funds just as quickly.

Many people today are turning to gold to protect their wealth, with gold demand surging to near record levels in the aftermath of this year’s bank failures. And one popular method of doing that is through a gold IRA.

While money in bank accounts can be moved into money market funds relatively easily, it isn’t that easy to move money from bank accounts into an IRA. That’s because the annual contribution limit for IRAs is $6,500, or $7,500 if you’re over age 50.

But a gold IRA can help protect retirement savings in existing tax-advantaged accounts, such as a 401(k), 403(b), TSP, IRA, or similar account. If you want to move funds from those types of accounts into gold, you don’t need to cash out and buy gold coins, you can start a gold IRA and use your existing tax-advantaged assets to buy gold coins or bars. Rolling over your assets from a 401(k) to a gold IRA can be done tax-free, allowing you to protect your assets with gold and without having to pay any additional taxes or penalties.

For those who don’t want to move money from their tax-advantaged accounts, there’s always the option to buy gold through a cash purchase. So if you’re worried about the money in your bank account and don’t quite think money markets are the choice for you, you can use that money to buy gold.

With over $2 billion dollars in precious metals placements and thousands of satisfied customers, Goldco works hard to ensure that our customers can benefit from owning gold, whether they’re doing so through a gold IRA or through a direct cash purchase of gold to store at home. Our representatives have helped thousands of people just like you navigate the gold purchase process, allowing them to put gold to work safeguarding their hard-earned savings.

If you’re looking to protect your savings and investments in the face of a recession that could end up rivaling the 2008 financial crisis, remember that financial assets aren’t the only game in town. Gold has served as a safe haven asset during times of crises for hundreds of years. Call Goldco today to learn more about how you can protect your financial well-being with gold.


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