My friend keeps $500,000 in the bank instead of putting it in investments. He might have another $100,000 in a retirement account. Are there any good arguments in his favor regarding keeping it in the bank?
My friend keeps $500,000 in the bank instead of putting it in investments. He might have another $100,000 in a retirement account. Are there any good arguments in his favor regarding keeping it in the bank?
Yes, it's almost guaranteed to be safe in the bank. Hopefully he doesn't have it all in the same bank though.
1) should stocks and bonds plunge, he is not exposed
2) should there be deflation, he will make riskless money
3) if he has mucho money elsewhere
Financial Guru wrote:
Yes, it's almost guaranteed to be safe in the bank. Hopefully he doesn't have it all in the same bank though.
He has it all in one bank. He says he believes in the bank. He only gets like .002 interest.
Gerrioer wrote:
Financial Guru wrote:Yes, it's almost guaranteed to be safe in the bank. Hopefully he doesn't have it all in the same bank though.
He has it all in one bank. He says he believes in the bank. He only gets like .002 interest.
He should absolutely spread it around to other banks at a minimum. He is insured by the FDIC up to $250k per social security number. Insurance works by account holder, not the number of accounts. If half the money is in his wife's name, then he should be fine. Also, if he wants to just keep it in the Bank, and the Bank is small enough, he should contact the Bank and request special pricing (more interest). Often times small Banks will give special pricing to individual account holders with large amounts on deposit with the Bank.
If he really intends on keeping all of his money at that bank, at a minimum he should be reviewing the quarterly Call Report filed by the institution with the FDIC (regardless if it is a private or public company). That report is a complete set of financials that will detail the balance sheet, income statement, asset quality (non-performing loans and charge offs), capital, and all sorts of other metrics. By keeping all of his money at one bank, he really should do full underwriting of the health of the institution. Unbeknownst to him, the Bank could be taking extreme risks with the depositors funds to enhance profitability. Does he know if his bank is under an MOU or Consent Order? That too is public record and will indicate if the FDIC considers the Bank a going concern.
Call Report Download:
https://cdr.ffiec.gov/public/ManageFacsimiles.aspxWants to be liquid
If he's of traditional retirement age (mid-60's) then he doesn't need to invest it.
The safest asset you can have is cash. Deep down, everyone wants to not have to worry about money. Keeping this money in the bank will take away his worries regarding money for a time. However, at some point, if this amount is spent down, those worries will return.