How Do Millionaires Protect Their Cash from a Bank Run?

spychiatrist on 12/03/2023 - 17:36

TIL with the collapse of the American Silicon Valley Bank (SVB) that in Australia, bank deposits are only insured $250,000 per person per ADI bank. Scenario, if you have $1M, you only get 25c for every dollar of your money back. If you have $250,000 in Westpac and St. George ($500,000 total), you'll only get $250,000 back should they collapseas they only have the one ADI licence. Same with nab and ubank.

So, how do the millionaires protect their money? What will you do in that scenario? In the US you can apparently get an insurance to guarantee your savings, but only 3% of the SVB customers have that insurance. I can't find a similar insurance here in Australia.

Oh, and in case it's not obvious…one you deposit your money to a bank, iIT BECOMES THE BANK'S MONEY, and what you have is an IOU.

Poll Options

  • 235
    Split money to different banks (max $250,000 per bank)
  • 2
    Insure the money (?)
  • 23
    Other
  • 6
    Under the mattress
  • 19
    Eneloops
  • 13
    Bikies
Financial

Comments

  • EightImmortals on 12/03/2023 - 17:44
    +99

    I'd be surprised if many millionaires kept most of their assets in cash.

    • orangetrain on 12/03/2023 - 18:52
      +8

      Dogecoin?

      • EightImmortals on 12/03/2023 - 19:02
        +18

        A healthy diversified portfolio.

      • WhyAmICommenting on 13/03/2023 - 10:30
        +3

        But don’t put all your “normal” super in cash - great way to have inflation eat your superannuation.

      • Poor Ass on 13/03/2023 - 16:05
        +6

        Don't listen to this guy

          • Poor Ass on 13/03/2023 - 16:09

            @[Deactivated]: Hahaha yeah good point

            By the way I'm poor not broke

            Plenty of people make decision from reading ozbargain

          • [Deactivated] on 14/03/2023 - 11:21
            +1

            @[Deactivated]: Has to hurt when someone named "poor ass" hands out blatantly better financial advice than you, lol.

      • CandyMan on 13/03/2023 - 19:00
        +1

        They keep their change in the savings account

      • Dalton on 13/03/2023 - 20:15
        +1

        The Barista Investor.

      • Reeee on 14/03/2023 - 18:16

        where are your puts then? very confident the market is going down, why not make some money from it?

      • DoctorCalculon on 15/03/2023 - 12:15

        it is also not too late to put %100 cash there.

        What are you smoking, bud?

    • Zondor on 13/03/2023 - 20:48
      +1

      Property has always been a big one, Art is massive too, it's why to see those ludicrously priced paintings of nothing.

      • nobro25 on 14/03/2023 - 16:50

        Art is usually sold for money laundering. You sell it at a high price and then buy back. Viola money is clean.

        • caitsith01 on 15/03/2023 - 10:07
          +1

          How do you imagine this works?

          "I have all this money from my drug empire. But I used it to buy and sell a painting so now the cops can't touch me!"

    • The Wololo Wombat on 14/03/2023 - 15:11
      +1

      I'd image you'd have to have a bet-worth of at least 20mill before you'd keep one million in cash.

      If you have enough money to have $1m… you also have enough sense to know that keeping $1m in the bank is a terrible idea (at least in this economy)

  • Hybroid on 12/03/2023 - 17:45
    +13

    I would imagine they don't keep large amounts of liquid cash in regular high street banks.

    You're either filthy rich enough to stash them in havens like Swiss or offshore banks or you've got people making your money work for you spread across portfolios of investments to generate more revenue and limit any losses, including inflation/currency devaluation.

  • currentfad on 12/03/2023 - 17:46
    +1

    Probably by not holding that much cash, diversifying investments and using those investments as collateral on a loan if they do need a large amount of cash at short notice.

    • srhardy on 13/03/2023 - 12:56
      +2

      Now the Perth mints been outed as watering down its gold, nothing is SAFE any more

      • lestat87 on 13/03/2023 - 13:41

        Wow thats crazy. When did that happen? Werent they the only place in Australia to get it?

        • iffer on 13/03/2023 - 14:53
          +10

          To be fair they were only adjusting the gold to the claimed purity (99.99). The problem here is they adjusted the content to 99.99 with silver rather than a mix of "junk" metals when there was a specified limit on silver content on one of the asian exchanges (who called them out on it). Perth mint was still > 99.99 purity.

          • StalkingIbis on 13/03/2023 - 16:45
            +1

            @iffer: Hey, settle down with your logic and facts, mate!

        • Poor Ass on 13/03/2023 - 16:06
          +1

          During covid and recently busted

          CCP not happy

  • GordonD on 12/03/2023 - 17:59
    +38

    Millionaires don't keep their millions deposited in banks. That's how they become millionaires.

  • tomleonhart on 12/03/2023 - 18:01
    +14

    As a millionaire, I keep all of my asset under my mattress. Safe and make the mattress firm just how I like it.

    • Derrick Crane on 12/03/2023 - 18:13
      +7

      Hope you're not incontinent.

      • resubaehtgnolhcs on 12/03/2023 - 20:57
        +7

        Doesn't matter … our cash notes are made of polymer

        • macrocephalic on 13/03/2023 - 09:44
          +1

          I hope he doesn't charge his scooter inside.

    • brawndo on 14/03/2023 - 00:26

      Coins

    • bonezAU on 14/03/2023 - 09:15
      +1

      Ah so that's where you keep all your investment properties.

  • coffeeinmyveins on 12/03/2023 - 18:03
    +3

    So, how do the millionaires protect their money?

    You seem to think that being a millionaire and having millions in CASH are two related things.

    You do know you can have very little cash but have (wait for it) assets or investments such as houses, shares, artwork etc?

    • dtc on 12/03/2023 - 20:21
      +2

      Fairly condescending. millionaires definitely hold cash, if they are running a business or spending $15k a month on living expenses, they aren’t selling off shares or houses or artwork constantly to fund that.

      Of course the majority of their assets aren’t cash but they will easily hold more than $250k in cash. Even if it’s just waiting for a good investment

      If they hold a lot of cash (like several $million) they might start buying government bonds. Lower return but government is essentially zero risk

      • coffeeinmyveins on 12/03/2023 - 20:28
        -4

        millionaires definitely hold cash

        Never said they didn't.

        they aren’t selling off shares or houses or artwork constantly to fund that.

        Never said they would.

      • Malik Nasser on 13/03/2023 - 09:09

        Government bonds would only be risk free if they are held to maturity.
        Based on your example of them holding bonds to fund paying off expenses, then the bonds would likely be sold before maturity, hence they are subject to duration risk.
        Someone that was using this strategy would have to focus on purchasing near term government bonds to minimise price fluctuations due to changes in interest rates.
        Then there is also market risk. If there is a run to sell assets to cover other exposed positions, there could be price pressure due to an imbalance of supply and demand.
        As long as you are not forced to sell an asset, then you should hold on until the market regains its composure and prices revert back to normal (ie as per 2020 covid crash and recovery).

        • dtc on 16/03/2023 - 14:09

          just to belatedly answer this question, there are very short term bonds and then there are long term bonds. Look at overnight mutuals for example. Not every bond is a 10 year bond that needs to be held to maturity.

      • mousie on 13/03/2023 - 14:59
        +2

        Unless they are Greek bonds

      • [Deactivated] on 15/03/2023 - 13:28

        There's a delicious irony here because didn't SVB just go down because they over-invested in government bonds that they had to sell at a loss (driven by recent increased interest rates) because people started withdrawing all their deposits

    • smartazz104 on 13/03/2023 - 10:42
      +1

      Great, everyone out there with a million dollar property can claim they’re are millionaires now…

      • supersabroso on 14/03/2023 - 01:16
        +2

        They are, as long as their million dollar house is owned only by them and it's debt free.

  • fantombloo on 12/03/2023 - 18:06

    Imo the $250k underwriting is more a psychological trick than anything else - it keeps people thinking things will be alright and leave their money parked where is easily accessible by those in power. When sh!t goes down do you really think the state, already in massive debt, is gonna start handing out a quarters of a mil?

    • Kumart on 12/03/2023 - 18:16
      +24

      If the Australian government can't guarantee this push comes to shove, we all have bigger problems of societal collapse.

      You forget governments can wish more of their currency into existence. You will get 250k back but hyperinflation could mean it can only buy 100k of stuff now.

      • fantombloo on 12/03/2023 - 18:46
        +5

        It's not societal collapse, it's possibly collapse of the current regime. But considering how docile most Australians are I suspect most people will be like "Yep, they got that wrong, couldn't see it coming, I guess we vote the other party in next time."

        • coffeeinmyveins on 12/03/2023 - 20:29
          +1

          lol if there was hyperinflation to the point where $250k becomes worth $100k I can guarantee you that no-one would be so cavalier in their response like you suggested.

          • fantombloo on 12/03/2023 - 20:40
            -6

            @coffeeinmyveins:

            cavalier

            No sorry, I'm vegan.

          • kraigg on 13/03/2023 - 09:06
            -1

            @coffeeinmyveins: I'd really like to think this would happen, and that people would rise up, but I'm not so certain after these past three years. Government locked people in their homes for months, forbid them from visiting their own families even on their death beds, prevented a lot of businesses from operating, and yet there was no uprising. People were docile and just did what they were told. The haves were always trying to dissuade and prevent the have nots from doing anything.

            We're now seeing the fastest interest rate increases in history, and again, no uprising. I believe the same docility would occur if hyperinflation ever hit. I could be wrong, and I really hope I am, but the experiences of the last few years doesn't fill me with a lot of confidence.

            Hoping this SVB fallout doesn't cause any local contagion.

            • coffeeinmyveins on 13/03/2023 - 09:11
              +2

              @kraigg:

              Government locked people in their homes for months, forbid them from visiting their own families even on their death beds, prevented a lot of businesses from operating, and yet there was no uprising.

              That's because it was in the best interest of their own personal safety and the safety of others, you can't really compare a financial collapse on a scale we haven't seen to a virus like covid. What would you have done? Let covid run rampant and have a hundred times as many deaths and a longer recovery period?

            • trapper on 13/03/2023 - 09:39
              +3

              @kraigg:

              Government locked people in their homes for months, forbid them from visiting their own families even on their death beds, prevented a lot of businesses from operating, and yet there was no uprising.

              The vast majority actually agreed with this stuff though…

            • ssfps on 16/03/2023 - 20:43

              @kraigg:

              and yet there was no uprising

              there were some smallish protests, remember the news telling us about those small 1000-2000 people "alt right rallies" that had about 10,000 - 20,000 people, most of which were asian/black/brown, and half the whites were hippies?

          • trapper on 13/03/2023 - 09:37

            @coffeeinmyveins: This has already happened over the last 10-15 years anyway.

          • ssfps on 14/03/2023 - 02:49

            @coffeeinmyveins: From 2019 to today, $250k purchasing power is now represented by ~$300k officially, and more like $350 in reality. The governments all printed enormous sums and encouraged huge debt based money creation, yet nobody really bats an eye apart from people groaning about some vague notion of "stagflation" they saw on the news.

            It's really not so crazy to think we'll hit a 50% devaluation in the next few years, who knows.

    • AustriaBargain on 12/03/2023 - 18:49
      +1

      Wouldn't any country risk ruining their credit rating if they didn't follow through with their insurance obligations? A country's credit reputation has to be worth more than these kind of obligations, you'd think, with their economies tied to it.

      • fantombloo on 12/03/2023 - 20:04

        If a nation state had debt to their citizens and to others outside, who do you think they'd default on first?

        The FCS is designed to keep stability in the financial system. Most state affairs are there for the protection of the state - protecting individuals may be a nice consequence.

        • trapper on 13/03/2023 - 09:41
          +1

          If a nation state had debt to their citizens and to others outside, who do you think they'd default on first?

          They don't need to default on either, just print more money

          • fantombloo on 13/03/2023 - 10:03

            @trapper: Anyone who's owed knows that's pretty much the same thing. There's always ways of making the wrong thing sound right, doesn't mean it's not the wrong thing.

            • trapper on 13/03/2023 - 10:15
              +1

              @fantombloo: It's not the same thing at all though. A nation state will never default on a debt in their own currency.

              • fantombloo on 13/03/2023 - 12:01

                @trapper:

                It's not the same thing at all though.

                Semantically? Sure.

    • ialam99 on 13/03/2023 - 09:33

      The Australian government is the only entity that can actually follow through on this commitment as they can literally print money to honour it. They're just honouring that they will give you your AUD$250k back. They're not guaranting how much that will be worth when they do it.

      • Tleyx on 15/03/2023 - 12:30

        Theres trillions cureently under the $250k guarantee

    • psylence on 14/03/2023 - 15:37

      By the state I assume you mean federal and yes I'm of the opinion they would if needed print money, devalue the Aussie dollar and make the quarter of a mill holders whole even if by doing so decrease how much each dollar is worth on a global scale.

  • scrimshaw on 12/03/2023 - 18:14
    +4

    I haven't got a million dollars, but about half of my savings are in shares and a small amount is tied up in annuities, gold and superannuation. Diversification is your likely answer to reducing risks.

    The uber-rich most likely would also be investing in equity / stocks/ shares and quite a bit in commercial property.
    https://www.reddit.com/r/NoStupidQuestions/comments/2ldrig/w…
    https://www.reddit.com/r/personalfinance/comments/22grrz/whe…
    https://www.reddit.com/r/explainlikeimfive/comments/4cfe29/e…

  • Trance N Dance on 12/03/2023 - 18:21
    +3

    Split cash holdings across multiple banks with different ADIs if need be, otherwise held in a different form of security such as gold, stocks, bonds, investments. They might be millionaires, but they sure as heck don't hold millions of dollars in cash, they hold assets that make them more money.

  • Trying2SaveABuck on 12/03/2023 - 18:38
    +2

    millionaires….most Australians are millionars due to property but if we are talking multi-millionaires as in networth >5m i dare say they dont keep too much money in cash

    the split for the average rich person

    10-20% Gold

    20-50% in growth Stocks/ETFs (dependent on Age)

    1-25% cash (via HIS or bonds)

    20-50% conservative Stocks/ETFs

    20-50% property

    not Stocks and ETFs can be both ASX or oversea (mostly US)

    not this does not include any 'businesses' said rich people would probably own

    • machej on 15/03/2023 - 01:01
      +2

      Average wealthy person doesn't have anywhere near that much allocation to gold. In Australia it's heavily weighted to property and their businesses.

  • cashless on 12/03/2023 - 18:38
    +9

    Property. Anyone who owns a house in an Aussie capital city is likely a millionaire.
    Being a millionaire really isn’t a big thing.
    Now, being a billionaire is where it’s at

    • Trying2SaveABuck on 12/03/2023 - 18:40
      +3

      i agree with you but having more then 5-10m networth you are rich imo

    • AustriaBargain on 12/03/2023 - 18:46
      +17

      Are you really a millionaire if your house is worth a million but the bank still owns 80% of it?

      • orangetrain on 12/03/2023 - 19:01
        -5

        You don't sound like a boomer

      • cashless on 12/03/2023 - 19:10
        +5

        Taking a few “average numbers” quickly googled for Sydney.
        Median house price $1.4m
        Average mortgage $0.75m
        Average Super balance at let’s say for example 50 to 54 years old $0.2m
        Adding the assets & subtracting the mortgage you get net worth of $0.85m
        If you’re not a millionaire now, then you soon will be, Mr Average.

      • Trying2SaveABuck on 13/03/2023 - 19:58

        Are you really a millionaire if your house is worth a million but the bank still owns 80% of it?

        no your networth is your assets minus liabilities

        historically if you owned a 1m dollar house in 10 years it would probably be worth at least 2m but in the current environment i dont see that happening

    • SBOB on 12/03/2023 - 20:58
      +2

      being a billionaire is where it’s at

      Join the three comma club

  • ihbh on 12/03/2023 - 18:48

    Diversify institutions, money market, short dated securities, offset account, etc.

  • dcep on 12/03/2023 - 18:50
    +1

    Australia housing market is 'worth' $10T.

    That's where people tie their wealth and keep the ball rolling.

    Not that it's secure given global history of housing crash and that hot $10 trillion dollars might dissipates into thin air,

    But somehow Australia managed to escape one for over 30 years which is a record and miracle by itself.

    • goober on 21/03/2023 - 11:19

      But all good things do come to an end

  • lostgoat on 12/03/2023 - 18:50
    +1

    I can't believe the phycology of 1 bank going bust and the panic merchants can't sleep . Sell your assets like some are now and I'll buy em in the doom and gloom !
    Put it in gold and hide it well as the 250k guarantee can go down as well in certain circumstances :)
    BTW Millionaires don't ahve much in cash as a general rule look at the shitty long term performance vs other asset classes.

  • MrThing on 12/03/2023 - 19:07
    +3

    I have my millions safely stored as bricks of cocaine under my bed

    • WhyAmICommenting on 13/03/2023 - 10:36
      +3

      Better hope a bear doesn’t find it!

      • Shane034 on 13/03/2023 - 17:22
        +3

        Or an NRL team.

  • altomic on 12/03/2023 - 19:11
    +2

    Scrooge McDuck style

  • Ghost47 on 12/03/2023 - 19:16
    +1

    Because they have it mostly stored in property, which as we all know doubles every seven years here in Straya.

  • freefall101 on 12/03/2023 - 19:38
    +3

    Diversification is key. It's why SVB went under, they couldn't answer the question of "what happens if interest rates rise and our customers make tens of billions in withdrawls?" with anything that ended well.

    All you need to do is look at their last financial statements. Page 125, they had $15b in unrealised losses on $91b of HTM securities (and $2.5b on their $26b of AFS securities). They dun messed up.

  • Wiadro on 12/03/2023 - 19:40
    +4

    every millionaire i know doesn't hold over 250k in the bank, they all have other assets

  • AngoraFish on 12/03/2023 - 19:55

    Most multi-millionaires diversify their risk so that if they do lose money most of the loss ends up being absorbed across the community in unpaid wages, superannuation, tax, defaults on invoices from sub-contractors and the like. They then recoup any minor losses left over after all of that across multiple financial years through carry-over tax offsets.

    If all else fails they get their lobbyists to coordinate a bail out with whichever political party is in power at the time.

  • meowsers on 12/03/2023 - 20:54
    +7

    For our US accounts we use a company called IntraFi via BNY Mellon. It's essentially a company that distributes your money for you across hundreds of banks. For example you can keep 50 million in cash with no risk.

    For all those who say "millionaires dont have cash" thats a bit misleading. How can you run payroll of a few million a month as a small business without large reserves. It's not as easy as it seems. Further many businesses have liquidity requirements.

    An easy way to ensure your personal funds are relatively safe is if you have large cash balances is via brokerage accounts. Or just run your funds through a Laddered term deposit style system. Where you always have a funds coming available in regular known intervals.

    • mandelbrot on 13/03/2023 - 10:46
      +1

      Sounds like they distribute those funds across the hundreds of banks in their name, not yours. So effectively it's their money.

      • meowsers on 13/03/2023 - 10:51

        No it's not. They wouldn't be able to spread those funds in their name alone because they have around 3 trillion in assets under management.

        https://www.intrafinetworkdeposits.com/

        • mandelbrot on 13/03/2023 - 11:51

          So have you signed documents for every one of those hundreds of banks in your name? If not, then it's in their name.

          • meowsers on 13/03/2023 - 12:00
            -1

            @mandelbrot: They act as our agent and do this on our behalf. ….That's the whole point of the service.

            • Hangryuman on 13/03/2023 - 12:24

              @meowsers: 'They act as our agent and do this on our behalf'

              and of course, when push comes to shove, the Australian government will come to your aid, to ask what happened with the money you sent to the US ?

              'I trusted that nice man in a suit - how come he took all my money !?!?!?'

        • Hangryuman on 13/03/2023 - 12:50

          https://www.intrafinetworkdeposits.com/

          online pictures of an attractive blonde female and a smiling older gentleman ?

          I'm impressed - where do I sign ?

          'Rest assured.
          Relax knowing that your funds are eligible for multi-million-dollar FDIC insurance, protection that’s backed by the full faith and credit of the United States government.          ' - hmm - 'eligible' ? Sounds like you could get some kinda insurance - but they ain't gonna pay for it - wassup !?

  • Cyphar on 12/03/2023 - 21:16

    Their money is split across multiple banks to protect their income and many don't use commercial banks. They may use a private bank that operates differently in terms of investment, but still operates under ASIC regulation, if they are located in Australia.

  • mickrb30 on 12/03/2023 - 21:26
    +1

    Look at history - money not safe in the banks, SO were do you keep it ?

    " Did depositors lose money in Cyprus?
    Depositors in two Cypriot banks lost billions when savings were confiscated to protect the island's banking system in 2013, in a process known as a bail-in.
    The move was a condition sought by international creditors for a 10 billion euro ($11.62 billion) bailout to the east Mediterranean island."

  • thesilverstarman on 12/03/2023 - 21:30
    +2

    Dont beleive that the deposit guarantee will cover what it is supposed to. Banks have clauses that allow them to revalue your accounts if they get in trouble. This happened in Cyprus in 2015. Essentially, they reduce their liabilities by giving all accounts a "haircut" which is Cyprus was between 3 and 15%. By doing this, they became able to get financing, but any guarantees are after this process takes place, not before. It only applies to domestic account holders, as there is no ability to do it to foreign held accounts.

    • JimB on 15/03/2023 - 09:45
      +1

      You can't compare the Australian Banking laws to Cyprus's Banking laws

      • thesilverstarman on 15/03/2023 - 17:05
        +1

        The Bank Bail-In Law at a Glance
        The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 or the Australian Bail-In Law gives the Australian Prudential Regulation Authority (APRA) “crisis powers” allowing it to, among other things:
        1. Secretly step in and run distressed banks;
        2. Bail-in distressed institutions using the creditors of the bank instead of using taxpayers’ money filtered by the government;
        3. Confiscate and write off certain types of bonds and hybrid securities;
        4. Confiscate cash savings of self-managed super funds (SMSFs).

        This puts depositors in a compromised position should banks in Australia come to be in crisis. Moreover, despite the existence of the government’s Guarantee Scheme and the depositor’s $250,000 guarantee under the Financial Claims Scheme, these are currently inactive and can only be activated by the Government at their discretion.

        • ssfps on 15/03/2023 - 20:26

          I guess you can compare our laws to Cyprus's laws, and what's more, it sounds like they compare rather well (or rather, rather poorly).

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