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

        • JimB on 16/03/2023 - 10:33

          Where does it say it can can give all accounts a "haircut"?

  • weee on 12/03/2023 - 22:35

    ask it this way if you win $20m lottery tomorrow, what would you do

    • FocusRider on 13/03/2023 - 15:48

      Wouldn’t it be nice

    • kraigg on 14/03/2023 - 08:35

      Buy 20 average houses, become a slumlord. Profit, and retire.

  • plmko on 13/03/2023 - 01:55

    An Australian millionaire keeps their "money" in something called a home which is then backed by a loan.

    If all the banks all blew up in flames then the loans disappear and you get a free home lol

  • gromit on 13/03/2023 - 08:27

    a) most of their net worth is not kept in cash, it is physical assets, gold, stocks, bonds, property.
    b) split cash between local banks and off shore.

  • batfastard on 13/03/2023 - 08:29

    Did somebody say "Bank Run"??

    HOLY SHIT!

    <races off to back and withdraws entire savings to stash under mattress>

    • Hangryuman on 13/03/2023 - 12:36

      I once read that old Chinese people don't trust banks, so like to keep their cash safe under their mattress

      and that burglars who know this like to rob old Chinese people's homes so they can look under their mattress

  • thestig on 13/03/2023 - 08:50
    +1

    Does anyone know what happens with cash in an offset account in the scenario of a bank collapse? Is the balance just applied to the loan or are you treated as a debtor for your loan (owe 100%) and creditor for the cash in the offset (25c/$ in the example above)?

    • Malik Nasser on 13/03/2023 - 09:13
      +2

      An offset account is considered your account, not the banks. So if the bank collapses, it takes your money with it, and is not paid against the loan. Hence offset account are more risky then say a redraw facility on the loan. However on a redraw facility, the bank may turn around and say no, you cannot redraw (though I have never heard this happen).

      • trapper on 13/03/2023 - 09:49

        So if the bank collapses, it takes your money with it, and is not paid against the loan.

        I've never heard of this happening either.

        • gromit on 14/03/2023 - 16:02

          It is a very remote possibility, especially in Australia, but the possibility is there.

    • Bargainitis on 13/03/2023 - 10:04
      +3

      I had the exact same question and keen to understand the implications behind this too.

      Putting aside the legal fineprints for one second, I suspect the commercial outcome should be it nets out. I can't imagine the general public getting their savings wiped out but still owe the full loan to the same bank that wiped them out. I guess this is where understanding the creditor waterfall will be helpful to determine the exact implication.

      I'll ask around and will update if I get tot he bottom of it.

      • leiiv on 20/03/2023 - 17:12

        But who knows the real answer? Has it ever been taken to the court before?

      • Bargainitis on 20/03/2023 - 17:25

        so still haven't been able to bottom this out but the bank account is "mortgage offset account" so I suspect there is some connection to the mortgage attached to your profile.

        Again, I think we gotta go back to first principles on this. The banks can't have it both ways. If they do, i'm sure there will be enough OZB rioting to justify amendment haha

        • ssfps on 21/03/2023 - 03:31

          The banks can't have it both ways.

          Why not? There is nothing about our society that prevents power imbalance between institutions and individuals.
          Besides, even if protesting made any different (which i find hard to believe), two thirds of the population don't have mortgages, and of those, plenty don't have offset accounts, and of those that do, plenty don't have significant/large offsets. So we're talking a small minority of people that would be getting seriously screwed. Ain't going to be a revolution over ~4% of "well off" people getting screwed over…

  • 2esc on 13/03/2023 - 09:16

    In the case of my uncle he doesnt hold a lot of cash instead his investments are giving him a return every week. Straight away 90 % of it is reinvested every single week making his money work hard for him.

  • singingwolf on 13/03/2023 - 10:11
    +3

    Millionaires don't have cash. They have debt.

    • Hangryuman on 13/03/2023 - 12:34
      +4

      if you owe $100,000 to the bank, you have a problem

      if you owe $100,000,000 to the bank, the bank has the problem.

  • Thinkswithelbow on 13/03/2023 - 10:15

    I don't have that much money

    • McFly on 14/03/2023 - 22:13

      Try using your other elbow.

  • knobbs on 13/03/2023 - 10:16

    Land banks

  • Based Bargainer on 13/03/2023 - 10:54

    They keep it in short term very safe government bonds

  • Baysew on 13/03/2023 - 11:01

    Some may keep it in Gringotts. However, security may have been a bit lax in 1998 when a trio of school kids were able to break in.

  • Munki on 13/03/2023 - 11:16

    <Insert Batman just bought the bank mpeg4>

  • Hangryuman on 13/03/2023 - 12:33

    first thought - if the average Oz bank savings account is paying like 0.01% interest, which is then taxable as income, it would seem foolish to keep large sums of cash in a savings account. Business accounts should be different.

    at least it could be in an offset account against an investment loan so effectively balancing a much higher loan interest rate

    my cash is mostly in a tax-free super pension stream reporting growth of nearly 10%pa over the last 10 years (went down the toilet with COVID but seems to be coming back now). Some in an online bank soon to be paying 4.6%pa.

    I'm not a business person, but I figure if one needed lots of cash to pay wages and business expenses, then a business account with a bank should offer a better interest rate on cashflow especially if in the order of hundreds of thousands of dollars a month.

    • ssfps on 21/03/2023 - 03:33

      Oz bank savings account is paying like 0.01% interest

      That was 2021 rates. Now even the big banks are offering savings accounts with ~3-4% p.a.

  • Ruckmauler on 13/03/2023 - 13:03

    This is how you do it - "opened bank accounts with 50 different banks"
    https://nypost.com/2022/04/08/bucks-star-giannis-antetokounm…
    "Since entering the NBA in 2013, Antetokounmpo has earned a total of $146,344,870"

  • srhardy on 13/03/2023 - 13:05
    -4

    Anything over the FDIC you get a credit as an unsecured lender to the bank. This is what’s happening in the US now, 250k+IOU. But it might be a year or a decade before any cheq is in the mail for any or all the outstanding amount.

    The bail in laws have now coded into law the process. In the case of the now 3 banks in a week going bust (another one today) it’s snow balling and they will need to redo the 2008 bail in or this won’t end well. They will resist as long as they can as the interest dragon is already 20% (10% price and 10% shrinkfaltion!) but they will have no choice. So hyperinflation here we come!

    Collapse might be mitigated by war with Russia and or China. That will reset everything for whatever is left

    • meowsers on 13/03/2023 - 13:13

      Depositors get access to all their funds on Monday (today US time) for both banks. All amounts, not just 250k.

      Stop blowing this out of proportion. All these deposits were backed by bonds anyways just with maturity down the road. No money will be lost.

      • serpserpserp on 13/03/2023 - 15:26

        Sorry when you say backed by bonds. Which bonds are true specifically referring to?

        • meowsers on 13/03/2023 - 15:40

          The bank takes deposits and invests them in government bonds with maturity dates. These are assets. They then pay a lesser amount of interest than they receive to the depositors. When these bonds hit maturity they will be redeemed and become liquid. Essentially the funds are safe. However, The cost of "money" from the Fed was more than they were making in bonds. This is separate to the FDIC insurance. It's more of the overall way a bank does business.

          The problem is the bank did not have enough free working capital to run its day to day operations. The depositors' money is just in illiquid form. They were not expecting that many people to withdraw all at once. This involves what's called LCR (Liquidity Coverage Ratio).

          The same would happen to CBA tomorrow if every single person withdrew all of their cash funds all at once. They would go down in flames.

    • DogGunn on 13/03/2023 - 13:14

      Anything over the FDIC you get a credit as an unsecured lender to the bank. This is what’s happening in the US now, 250k+IOU. But it might be a year or a decade before any cheq is in the mail for any or all the outstanding amount.

      US Treasury, the FDIC and Federal Reserve have already said that come today (Monday US time) that depositors will have access to ALL their money.

      Are you saying they're lying?

      https://www.fdic.gov/news/press-releases/2023/pr23017.html

      What you've said does not appear to reflect the reality.

    • mandelbrot on 13/03/2023 - 16:30

      Jesus. You have nfi.
      Btw - do you know the difference between a bail-out and a bail-in?

  • ttt888 on 13/03/2023 - 14:28

    Do nothing. Feds bailed SVB.

  • serpserpserp on 13/03/2023 - 15:24

    What OZB guy has a million in cash? Isn't it all still tied up in being an FTX unsecured creditor?

  • digitale on 13/03/2023 - 16:11

    In the US you can apparently get an insurance to guarantee your savings

    I thought that's the US$250,000 protected by FDIC? Similar to AU$250,000 in Australia.

    • surg3on on 15/03/2023 - 14:54

      You can get an insurer to cover you for just about anything if you pay. The first $250k is free.

  • mintygirl on 13/03/2023 - 16:15

    split it to 250k per bank

  • Clear on 13/03/2023 - 16:31
    +2

    I personally bury shipping containers. Good for gold. Not so good for the people who tried to break into my shed.

  • ajr5k on 13/03/2023 - 17:10

    I read this post and was left waiting for the crypto currency pitch that didn't happen.

    • mandelbrot on 13/03/2023 - 17:17

      All in on Luna and FTT!

  • Shane034 on 13/03/2023 - 17:29

    So if you had say 280k with ubank and nab, you'd only get 250k guaranteed right?

    If you put the extra 30k (over 250) into CommBank would that be guaranteed because it's a different bank?

    • mandelbrot on 13/03/2023 - 18:00
      +1

      Correct and correct

  • duluxe2000 on 13/03/2023 - 17:45

    Can someone knowledgeable abt this matte answer these questions of mine?

    1. If I have a loan, say -270k in loan n 260k cash in offset, n the bank collapses, do I still have -270k in loan n get 250k under the guarantee scheme? If so, better pay 10k in loan n keep 250k in offset only

    2. Under the guarantee scheme, say my partner n I have joint account of 150k, I have an account of 150k (just example), do we get back 300k in total or just 250k?

    Thanks

    • mandelbrot on 13/03/2023 - 18:02
      +1

      1. Correct. You'll still be liable for the $270k loan (that might get sold off to another bank). Only $250k cash is guaranteed.

      2. For joint accounts, each account holder is entitled to the $250k guarantee

      • duluxe2000 on 14/03/2023 - 00:32

        Oh I see, thanks. So it's better to put in redraw than offset in this case 🤔

        • mandelbrot on 14/03/2023 - 01:09
          +1

          You just gotta make sure you don't redraw any funds from your PPOR for investment purposes, as it's not tax deductible.

  • The Value on 13/03/2023 - 18:57

    Wealth and Poor People by Alpha Investments.

    https://www.youtube.com/watch?v=MX_JYpp5lCA

  • redfox1200 on 13/03/2023 - 21:29

    i just split my money between 30 different banks to stay under the 250k limit

  • JonSteele on 13/03/2023 - 22:01
    +1

    Your money is insured by the federal government, you're not gonna lose a dime! Think of your families, don't risk your life. Don't try and be a hero! "Robert Deniro" Movie Heat.

  • Donaldhump on 13/03/2023 - 22:24

    The bank guarantee is just a false sense of security.

    A bank may never fail in order to trigger it because they just bail in your savings to stay afloat. Legislation that was passed and kept quite from the public.

    But whether it ever comes to that I doubt it. So just splice 250k per institution / parent bank to be safe

    Pretty dumb logic though because if everyone does that where tf does the Gov get the money from (just print some more)

  • quikchip on 13/03/2023 - 23:55

    Find an island, put treasure on island.

    • Senatekill on 14/03/2023 - 21:51

      epstein put kids on his island and brought the rich and famous there…..you know what happened next

      • SBOB on 14/03/2023 - 21:53

        Hunger Games?

  • ForkSnorter on 14/03/2023 - 08:16
    -1

    I saw some data showing that the average Australian (even counting kids) is practically a millionaire. I don’t agree with the article, because I don’t think they were using the median figure.

    But in any case, a large proportion of the Australian population have at least a million in assets. Most of it will be in their primary residence, a fair chunk in superannuation, the rest in property investment, shares, and maybe a little in cash.

    The term “millionaire” is no longer a useful term for wealthy Australians. Multimillionaire is a more appropriate term.

    Most multimillionaires in Australia will probably have a really nice house, maybe a few investment properties, a really nice car, heaps of superannuation, maybe a bunch of shares, and maybe some cash. More likely to have far more superannuation than cash in my opinion.

    • trongy on 14/03/2023 - 23:49
      +2

      The ABS said that in 2019-2020 the average net worth of a household was $1.04 million. However, the top 20% of households had 62.8% of the wealth and bottom 60% of households had only 16.7% of the wealth between them.

      Household Income and Wealth, Australia

  • jar-unit on 14/03/2023 - 08:17

    Bitcoin

  • payless69 on 14/03/2023 - 09:52

    They use a "female dog" which gets away using a false name to stand in front
    And rant that dumb people should sell their houses and buy their shares…..

  • Treble Sketch on 14/03/2023 - 10:22

    Well, a mix of things.

    One of them also potentially grouping together and influencing policy so they can get their money back no matter WHAT happens… Look at what is happening to SVB atm, they've got a corporate welfare/bailout from the government no questions asked with how much it'll cost it looks like.

    They really are a whole tier above us sometimes, when we don't manage out money well enough. We're expected to deal with it ourselves but when you're big enough and know enough "friends", you don't have any consequences for you actions…

  • Cluster on 14/03/2023 - 11:59

    Millionaires generally keep their money in assets, not cash.

    But there are some corporations sitting on massive cash piles. Apple is one example. US$21 billion in cash. I wonder where they keep that? I'm betting across multiple too-big-to-fail banks.

    • drfuzzy on 15/03/2023 - 00:01

      They keep it in offshore banks as they can't repatriate it to USA without the taxation they are evading.

  • congo on 14/03/2023 - 16:14

    I think this is the wrong place to ask

  • [Deactivated] on 14/03/2023 - 17:42

    .I don't know. I've never been a millionaire or been around many who tell me their financial strategies, so, I don't know

  • mitt on 14/03/2023 - 17:58

    Land banking is how most millionaires store wealth from what I have seen.

    At least until you get into the multi-millionare levels, then its all offshore weirdness that their finance guy handles.

  • ribze1 on 14/03/2023 - 21:28

    Millionaires have assets not cash.

  • Senatekill on 14/03/2023 - 21:49

    buy gold

    • surg3on on 15/03/2023 - 10:24

      Where are you going to store it? If its at home Id like to see the loss stats of home gold vs banked gold.

  • drfuzzy on 14/03/2023 - 23:57

    A better question is how does a business protect their money?
    Not hard to protect $10m - $20m in net assets as an individual but even a medium business needs millions in cash to cover a small payroll of 50 people.

    • surg3on on 15/03/2023 - 10:20

      corporate insurance. It can cover a multitude of things.

  • drfuzzy on 15/03/2023 - 00:00

    The government guarantee could be withdrawn at anytime - such as in a major catastrophe.
    It could also be extended at any time.
    Relying on a guarantee that really isn't a guarantee is a fool's errand.

    • surg3on on 15/03/2023 - 10:23

      They can also cease education/policing/healthcare/voting whenever they want.

  • shortgum on 15/03/2023 - 01:15

    US in a frame of maniac state. hell not a good time for the world now. split money to different banks.

    for rich with assets. good idea to get rid of usd related assets in long term. their creditability is gone smoking thanks to byden admin sanctions on russian assets

  • echelon6 on 15/03/2023 - 09:43

    millionaires have debt and assets.
    the only cash i have is in offset accounts where I owe that bank more than my balance.

    actually come to think of it… if an aus bank blows up, can they call in the loan? I don't think legally they're allowed to but…

    • surg3on on 15/03/2023 - 10:22

      They cant. They can cease lines of credit (usually businesses) and credit cards. They can also not lend an undrawn loan and not give you whatever you have in your redraw or overdraft.

    • ssfps on 15/03/2023 - 10:42

      actually come to think of it… if an aus bank blows up, can they call in the loan? I don't think legally they're allowed to but…

      The loans the bank owns have value (an asset). Those assets will be distributed/sold in all but the most apocalyptic scenarios, so your loan will continue being paid but to a different company. I've never heard of anyone discussing the legality of calling in a loan on short notice, even if somehow that was legal, if the bank is having a run on its cash reserves, they aren't going to have time to try and sell your mortgaged house off to service that cashflow needs, so it's not something i would worry about personally.

      OTOH i'm pretty sure your offset accounts could just be taken/gone, since the whole point of fractional reserve banking is the bank doesn't need to keep cash (or liquid assets) covering most of its deposits on hand.

      • mandelbrot on 15/03/2023 - 11:53

        There were many instances of loans called in during the GFC on short notice, even for loans that the borrower's were well ahead in payments.

        Fractional reserve banking is a fallacy, because the reserve is actually 0%. This was changed in many countries during covid very quietly (including Australia).

        • surg3on on 15/03/2023 - 14:57

          All of these 'examples' would have been loans that were lines of credit that can be withdrawn at any time. They do not amortize. Mortgages are not the same.

        • ssfps on 15/03/2023 - 20:28

          Fractional reserve banking is a fallacy, because the reserve is actually 0%. This was changed in many countries during covid very quietly (including Australia)

          Can you cite a reference for this?

      • echelon6 on 16/03/2023 - 07:50

        Pretty sure the offset account remark isn't true. So if I have a 1m loan and 1m in the offset and the bank blows up, they take my 1m offset for the pool of assets? No way…

        • mandelbrot on 16/03/2023 - 12:04
          +1

          An offset account is just a savings account that is offset against a mortgage.

          https://www.savings.com.au/savings-accounts/what-happens-if-…

          Just because you don't believe in gravity doesn't mean you're gonna fly when you jump off out of a plane without a parachute.

          • echelon6 on 17/03/2023 - 09:36
            +1

            @mandelbrot: Then it makes sense to put it into redraw if we fear bank collapses in aus.

            • ssfps on 17/03/2023 - 15:15

              @echelon6: I would be repaying any offset loan amounts at the first sign of trouble for an aussie bank.
              (and hoping the first aussie bank to have trouble isn't the one i have the loan with…)
              It's a hard decision of course, due to loss of liquidity, possible reduced tax deductions (if investment prop)…

  • surg3on on 15/03/2023 - 10:19

    Australian banks have different regulations. One of the MANY is they have to report large depositors and concentrations of depositors. Those types of depositors (companies with large balances) are also considered to be far higher risk of running out the door as well so attract a heavy liquidity burden. Persons with large balances are also considered riskier than many small balance individuals.

    Last but not least you have to remember the bank owns a lot of loans and other assets. Those loans will cover the deposits (unless they bad) but pay back slowly. Should a government step in and take ownership of everything they will get their money back eventually.

  • [Deactivated] on 15/03/2023 - 12:30

    US Government Bonds

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