Uninsured Deposits Are Going to be a BIG Problem

While this Summer may be faking out retail investors with an encouraging stock market, dooms day is approaching for many uninsured depositors.  A Yahoo! story called uninsured deposits a “ticking time bomb” and I’m here to curate all the details from this new report and tell you where I’m putting my investment capital now ahead of what will be some very trying times.

What is an Uninsured Deposit?

Uninsured depositors are exposed when they have above $250,000 in one financial institution because federally you are protected up to $250,000 from insurance.  This is provided by the Federal Deposit Insurance Corporation, or the FDIC as most people know it by.  If you belong to a credit union, you’ll be backstopped by the National Credit Union Administration.

Many people forget that just a few months back three banks FAILED.  While the depositors were bailed out, we can’t be so sure of that happening next time.

If you have a transactional account that’s operational, you could be seen as a “core” for the bank, and this helps them maintain liquidity in a very cheap way.

According to this story, 40% of all deposits are uninsured deposits.  This was a number that sat at 20% less just three decades ago, for those counting.  These are a massive problem for banks, especially when you couple in online banking and the ease to make transactions.  The more problematic theme here is that most of the customers holding these deposits aren’t aware of the problems their banks are having.

The average depositor at a regional bank, for example, has no real way of knowing how the bank is doing stability-wise, and this is something that will be worth watching play out.  When depositors do sniff out trouble, they will make runs on that bank, and this is a snowball effect.  Just look what happened a few months ago as proof.  History will repeat itself, in my opinion.  The snowball effect continues when depositors create a chain reaction and withdraw money at other institutions, which has massive consequences on the U.S. economy.  The risks to everyone is very real, so I urge you to stay with me here as I offer a solution to be proactive ahead of what could happen.

One solution the article offered in the immediate term is to get rid of the source of instability and offer insurance for all amounts they hold in deposits.  This would require Congressional action, so don’t expect this to happen any time soon.  There’s also action needed by the FDIC as deposit insurance premiums would have to be adjusted as well.

Another interesting anecdote to this story is that if this were to happen, there would be a lot more transparency in the banking system.  Right now information is kept tightly guarded as anything construed as weakness could cause a run on banks.  However, the story argues, that if everyone had unlimited insurance, this could be avoided.

The counter-argument to this idea is that banks will take more risks since people won’t care what happens since they are fully insured.

My Take:  

We’re still in a very dire, fragile state in the United States economy.  Our system has a lot of stress on it, and another bank failure could create chaos.  The system will get a huge stress test later this year, (again according to the news article) by “the cratering of the commercial real estate market and the consequent write-downs of banks’ loans on these properties.”

My Solution:  

I’ve been investing in alternative assets classes in 2023.  Precious metals are the best option for me, both inside and outside of my retirement. I’m also investing heavily in cryptocurrency, but I’d never tell anyone to follow that suit as it’s a largely misunderstood, and quite chaotic, asset class.  But for full disclosure I’m pretty active in that space.

When the economy heads south and markets bleed red, precious metals prices go up in value.  Gold and silver are global currencies that are traded daily.  The values, according to Robert Kiyosaki of “Rich Dad, Poor Dad” fame, are about to skyrocket.  He has predicted prices of $75 for Silver and up to $3,800 for gold.  That’s a triple and a double in value at the time I’m writing this post.

If you aren’t allocating a small portion of your net worth to gold and silver, you may be in for a rude awakening.  If you are looking to add gold to your retirement account, the best company you can work with is Goldco.  This is the company I used for my precious metals IRA and it was after an exhaustive search.

If you are looking to purchase gold or silver bullion for cash to store in a vault or personal storage (safe deposit box), American Hartford Gold has the best prices and reputation. They can also do IRA investments so if you are looking for both, contact them through the link above and request a free guide.

Not financial advice.  Please do your own homework and know that this website contains opinions. We are not here trying to paint a dooms day picture, but rather we like to learn from our mistakes and follow the leads of thought leaders and financial guru’s like Mr. Kiyosaki, who is far from the only person with this opinion.