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How to Protect Your Money If Banks Being To Fail

By: Steve Johnson

8/20/2008 - 64 Comments

If major US banks begin to fail, as reported in the LA Times today, what is your strategy to preserve your money?

The LA Times article Fears bloom on rumors of pending bombshell in financials, says;

“All the talk in the credit markets this week is that another big bomb is about to go off in the financial system. .. Fears of a mega-failure were amplified Tuesday after Kenneth Rogoff, former chief economist at the International Monetary Fund, predicted in a speech in Singapore that a huge U.S. bank was certain to collapse in the near future -- although, of course, he wasn't naming names.”

Here is my strategy;

I plan to keep the money that I need for monthly cash-flow in my local Credit Union that has very little investment in real-estate.  This is my primary bank account.  Then, I have several other bank accounts including another Credit Union and a Business account (which may be safer because because banks cater to business accounts). All are local small banks that have little or no money invested in real-estate. I think the larger national banks are in the most trouble, even if they have better options like free checking or free banking online, I think my money will be safer in the smaller local banks that have a little investment in real-estate. 

Credit Unions make their investment portfolio public, so you can see how they are investing your money. Opening several accounts at different banks gives you some protection if one goes under because at least you will not have lost all of your money. All types of saving and checking accounts are FDIC insured by up to $100,000 but who knows how long it will take to get your money after a bank goes under - while you still need to pay your bills. The other advantage of having several bank accounts is to quickly move money between them, as CD and saving rates change or as you begin to suspect their financial weakness.

Also, most investment products are not FDIC insured, so keep that in mind. If the bank that has your 401k investment goes under, you may not be able to get it back. For more information as to what is insured, here in an article from the FDIC. Insured or Not Insured?

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