Are Savings Accounts Safe? – Episode 510 

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers welcome to the podcast, we’re gonna be talking about the safest savings accounts because every single bank is a threat at this moment. I just say that they all have a target on them and some of them are getting taken down. So Kim, let’s turn to you the expert to hear what’s really happening and how we should be looking at this. Well, it is a very interesting space in the banking world these days. And I’m so so grateful that we have another financial institution where we can store money in the form of the mutual life insurance company. So I want to talk about that first because there is a place there that I think a lot of people are not familiar with. Our clients, of course,

[00:53] know that mutual life insurance companies can store their cash value. But what they might not know is that every single policy can have what’s called a prepaid premium account on it. And it’s exactly what it sounds like you prepay your premium. And it is usually around the same interest rate that a savings account would earn. So you know, today’s world three, four percent, give or take, it is not a part of your cash value. Nevertheless, if you have dollars that are sitting around, and you want to get ahead of the game a little bit, just for even one or two years, I don’t know that I would recommend it. You can actually do up to 10 years of prepaid premium. And I don’t know that I would recommend you go that far. But I do three, four, five,

[01:46] six, seven, you can put the money in the insurance company, it will go into a prepaid premium account, which will then feed your premium annually for the next however many years you’ve elected to make that deposit. So it’s a very valuable place to store additional cash, in addition, of course, to the cash value that is obviously stored at the mutual insurance company. And on that note, just in case nobody knows this or might forget it, because it is easy to forget, a mutual life insurance company has 100% of their reserves backed up at 100%. It is not a fractional space at all. So banks have fractional reserves, like they’re a federally governed institution, banks are nevertheless, they only reserve seven to 10 cents on the

[02:49] dollar. And so the fact that they’re federally governed is a little bit of a misnomer. Furthermore, the life insurance companies are state regulated. So their industry does not have FDIC insurance, because it doesn’t need it. It’s backed up dollar for dollar. So there’s no need for that federal supposed insurance, which is not really insurance at all. It’s just the taxpayers ability to pony up when when banks go under. Just so sad. But it is a it the mutual life insurance company is a very, very safe place for savings. Yes. So is it totally off the table and unreasonable because I hear conversations from research that some people think that the dollar is gone. Like banks go, the dollar is gone. Let’s let’s start at that, like that far extreme so

[03:48] we can work in. Yeah, that’s a great question. And there may be a day in our lifetimes when the dollar is gone. But I don’t think it’s anytime soon. And more importantly, there’s nothing that you and I and the normal run of the mill human being can do about the quote dollar being gone right now today. Now I know there’s talk that you could buy gold and you could buy other things that would be a replacement for the dollar. But the fact is, I think I just saw a statistic 57% of all the countries in the entire world are still using the dollar. And there’s a lot higher percentage that are using it. But they are talking about an alternative. Well, just back up for a minute. Like, what would an alternative be? Like, could we all go back to the gold

[04:48] standard? Well, of course, that would be lovely. But I’m not sure that that’s going to happen anytime soon. So, you know, what are you going to pick the rupee from India? I mean, you know, there just isn’t it just doesn’t make sense that there would be in the short term, something else picked. There’s no way entire countries could just switch gears all of a sudden. So I so encourage people to focus on what they can control. And right now in the United States, we’re using dollars, we’re going to be using dollars for a long, long, long time. And so while I do believe that you want to store only $250,000 or less in a particular institution, because of the FDIC rules that we do have for dollars. Beyond that, there is no point in

[05:44] being overly concerned or trying to do something about, quote, the dollar going away. Okay, good. Well, we we got that out of the way because I mean, I do see that happen and people talking and, and having threats and worries about that. The second thing I think of is that in the past, there used to be accessibility to cash a lot quicker. So you could go to the bank and pull 10 20 $50,000 out right away. No problem. Now is just as an experiment. Try going to your local branch and saying, Hey, I want $50,000. They’re going to look at you like you’re a criminal. And you may get the money in a week, a few days. So that’s where in the past, storing money and life insurance didn’t seem like it was as appropriate. Now it’s on the same footing. And

[06:46] we’re with a secure organization. So can you dive into that a little bit more? Because I find that used to be a concern and it may not be as much anymore. Right? Well, there is something to be said for having extra cash around if that’s truly your concern because yes, banks are first of all beholden by the know your customer rules, which is any cash over $10,000 is going to be heavily documented. And second of all, the banks are not storing a lot of physical cash themselves either. So if you are trying to get a deal done, you can’t really operate in cash anyway, like if you’re trying to, you know, make down payment or real estate or something like that, that has to be done in dollars. And there are technologies that

[07:35] move those dollars, you know, whether it’s BCH or a wire or what have you. But in terms of like living your life, going to the grocery store, that kind of thing, I find most people are operating with credit cards these days anyway, and it’s pretty rare. And I even live in a small town and I’ll admit there are a couple of restaurants in our small town that take only cash, but that’s pretty rare. It’s just not as common these days for that to be the only thing. And again, what what’s more important to me is that we focus on what we can control. We work with the systems at hand, like, you know, some people used to feel like, well, I don’t want a credit card because I’m afraid I’ll, you know, treat it poorly or

[08:21] whatever. Well, it’s pretty tough to live your life these days. You can’t buy a plane ticket, you can’t get a rental car, you’ve got to have a credit card. And a debit card, while it could perform the same function is not as efficient, they put extra holds on them, etc, etc. And for people that are trying to get deals done, as said, we have ACHs and wires, etc. So it’s something that again, focus on what we can control, work with the systems that are there, build in some degree of certainty for your family. So whatever that is, if that’s extra cash in your home that you want to store in a safe, great. If it’s water and food that you want to store in your home, great. If it’s a couple extra credit cards that you, I

[09:09] know somebody that put them in a bag of water and put them in the freezer. They couldn’t get at the credit card. You know, if that’s your sense of security, great, whatever it is, that enables you to sleep at night and then you as a human being to go focus on what you’re good at doing in your act of service to the world and go do it. Yeah, that’s funny. You mentioned that. So let’s talk about a couple different scenarios where people are storing cash. T-bills is one a lot of people are storing cash in their real estate, meaning they haven’t refinanced or they’re not leveraging HELOCs or whatever that may be businesses. So for people that are thinking prosperous right now that do have money that have implemented a strategy,

[10:01] we’ll call it something that’s going to be helpful. What do you say to that if they’re looking at T-bills or starting another account for a child or if they’re going to keep it inside of real estate? What do you suggest? Well, without a doubt, it’s no secret that I’m a fan of using the life insurance space as an alternative to any kind of T-bill or T-bond because those can have limits on them as we’ve already seen, like the I bonds, there’s 10,000. There are value issues with treasury bonds if interest rates go up the value of your treasury bonds could go down. And typically the life insurance growth is around the same 4% or so that the T-bills and T-bonds are anyway. And especially when you look long term, you know, yes, they

[10:56] may be up to six or seven or down to two or three. And the life insurance growth of cash value of whole life is not going to move around as much or as quickly, but it will move. In other words, if our economy dictates that interest rates go up to seven, eight, nine, 10%, you’re going to see the growth of cash value, follow that. And while it may not follow it the next year, because dividends are only declared once a year, it’s going to follow it in time. And another thing that I really want to point out is that people really scramble to make decisions around, oh, this hundred thousand is going to earn 3.9%. So 3.5%. And I’m going to take some time and set up this new account and move the money. And if they actually did the math for what

[11:51] the differences that they’re going to get, it’s so small. And so it’s important to me that people think about long term, especially like, you know, if you had a couple million dollars that came from a sale of a business and you knew you wanted to leave it as cash, well, then it’s worth thinking through where am I actually going to store it. But if it’s less than 100,000 being overly concerned about 3.9 versus 3.5 is not worth the time. You know, it’s so funny that you mentioned it that way. I was having a conversation with a friend of mine and, and for our listeners to get context, these episodes come from you. So if you do have listener questions, please send them in to hello at prosperity thinkers calm. And some of

[12:38] the topics of the podcast will come from Twitter threads or from searching. It’ll come from a variety of places. And I have a friend that recently sold a company and he had millions of dollars and he was paralyzed for a bit. And you’re mentioning following principles, long term thinking. And that’s why when we have these episodes about AI, or we have an episode about this, for the most part, it’s moving along on those principles. And it’s not getting blown around where you’re always having to pivot and change. Yeah. And I do want to bring up since our podcast listeners are aware, our current structure, the app plus account that we’re using to drive savings behavior. That is at 100 plus year old bank and Nashville, Tennessee, it’s

[13:33] called thread bank. And so I do know that there are banks that have been around a long, long time that are FDIC insured that we can be very, very certain about in storing money. And as a matter of fact, because of the relationship that the current community has with thread bank, their FDIC coverage is going to be up to $2 million here just in probably by the time this podcast is released, I think it’s the middle of April, when that is being changed. So there are banks that are completely safe that we don’t need to be concerned about community banks, especially those that have been around a long, long time credit unions, again, those that have been around a long, long time, where we can store cash and be confident.

[14:21] And I do want to pick back up on your quest around the equity in real estate, because that is not a safe place to store cash. If that real estate goes down and you have to sell because of other things going on in your life, all of that equity is gone. And we know in 08 and 09, that happened, we know lines of credit got taken away. I think that’s another place people feel like they have cash quote stored is in the capability of a home equity line of credit. And those can get yanked overnight by the institution that’s providing them. Jimmy Greenland has such a great quote. And this is the co author of our best in real estate investing lies book. And that is that you can’t eat equity. And it’s a good reminder that equity

[15:13] may be liquid, but then it may turn around and not be liquid the very next day, it may be an asset, and then it can turn around and not be an asset the very next day. So I encourage people to think very, very carefully before they use equity in any type of real estate as a true asset on a balance sheet, because it changes. Absolutely. I think, you know, for for me as a spectator and participant in this conversation, I’m trying to wear both hats. What I would want to do is base it off of what has worked in the past, and what changes are happening in the future. But then even tying in from our previous episode, where we talked about artificial intelligence, I would also want human intelligence. So sending an

[16:06] email to hello at prosperity thinkers, and asking a question, getting some guidance, you know, we’re in a time where banks collapsed overnight, and we found out about it through a Twitter thread. Like, yeah, that’s amazing. And we definitely want to have ourselves prepared. And we want to have ourselves thinking strategically. And we have to think prosperously at all times. Because if not, this is this right now is the time when people are scared is the time when the prosperous people get to be the leaders, they get to be the people that take the next step. It’s not taking advantage of anyone, but it’s taking the next step. And that’s what’s amazing for me at least. So hello at prosperity thinkers calm, send

[16:54] those emails in, we’d love to cover some of those episodes, and then your financial questions. If you got money in home equity, or you’ve got money in real estate or a business, or you’re looking to start a new policy, like, this is the time to get those questions answered. Thank you for listening to the prosperity podcast. To take control of your money and have it work for you. Visit prosperity thinkers.com