8 Ways To Protect Yourself From Bank Failures

With recent bank failures at an all-time high, it’s probably a good time to evaluate your financial accounts. No matter where you are on the financial spectrum, there are eight things you can do right now to protect your money from bank failures and create a more stable future when the economy takes a nosedive. We’ll look at this from the perspective of practical actions that you can take now.  The first three points I’ll outline assume that you have money in the banks, markets, or retirement plans, but the last 4 points are simple techniques will work for anyone, regardless of income to make sure you’re positioning yourself in the best position financially to weather this storm. So let’s start with the first point.

1. ASSESS YOUR ASSETS

Between the deepening global recession, inflation, and bank failures, the age of progress and innovation is over for the near future. You should take this time to do what savvy investors are probably doing, and that’s to move to the most conservative investments you can find. Now might be a good time to chat with your financial account manager if you have a 401K or retirement account to gain their insight.

When it comes to large accounts like retirement plans, you may want to create additional portfolios with different financial institutions.  Check the level of deposit insurance on accounts.  The FDIC insures up to $250,000 per account.  If you have an account with a bank that exceeds that amount, now would be a good time to move the additional income to other banks that are FDIC insured.

Recognize the warning signs of a bank’s possible collapse wherever you bank. Bank failures result from the compounding effect of bad decisions over time. There are clear warning signs. If there was a sudden run of depositors withdrawing funds, would you be able to transfer your money out? Even if you are happy with your bank, setting up another bank account where you can transfer money over the Internet is like diversifying your portfolio. 

2. TROUBLE SIGNS

Some bank failures are sudden and shocking, but some pretty clear signs of trouble precede most. There are signs you can look for before your bank fails. A big one is a sudden plummet in their stock, but by this time, it may be too late, and your assets could be frozen. Still, if you follow stocks at all, you can see short-sell orders rise to extreme levels right before a bank is about to collapse. Investors will often short-sell the stock to make a profit on the way down. Before it gets to that, look for these other signs. If your bank delays releasing financial information, announces they are closing branches, or plans to lay off many people, they’re trying to adjust their balance sheets and operating costs quickly. To dive deep into the bank’s health, visit the Federal Financial Institutions Examination Council website and examine Uniform Bank Performance Reports or UBPRs. It’s a complicated database, but you may want to do a deep dive if your assets are significant.

Another troubling sign is deposit migrations. On the FDIC’s website, you can see a year-to-year comparison of total deposits for a bank. If those drop by double-digit percentages, it may indicate your bank is struggling and folks with a lot of money are exiting. Finally, if they start cutting services they once offered or suddenly hike their fees or interest rates, it could mean they are struggling. When you have a combination of one or more of these trouble signs, people might flee a bank and withdraw their money simply based on a fear of failure. That can add pressure and accelerate a bank’s demise. 

3. CONSIDER A CREDIT UNION

Credit unions follow a distinct business model that prioritizes their members’ needs over generating profits for shareholders. They are also carefully monitored by regulations and are insured. While they aren’t immune to playing correctly and fairly with your deposits and not over-extending themselves, the higher regulations and lack of simply driving profits make them probably less likely to mishandle your money. Credit unions have a unique business model that sets them apart from banks. They are not-for-profit institutions, which means they are owned and run by their members rather than shareholders. This approach allows credit unions to prioritize the needs of their members instead of generating profits for shareholders.  While there’s no guarantee your money will be safe here compared to conventional banks, it’s something worth researching.

4. BUILD YOUR RESERVES

You can look at this from 2 perspectives: the practical and the financial.  Let’s start with practical items like food. If you slowly build up a 3-months food reserve, one can, a bag of rice, or a sack of flour at a time, you can at least put in reserves the crucial items you’d need to survive if the economy absolutely tanks. I’ll link to a video on how to do that in the comments below because I often hear from people who have made it through tough times by eating what they had in their pantry. Start by building what’s there– one bag or can at a time.  

As for your finances, it’s crucial to create a financial buffer so that if you’re in a difficult financial position, for example a job loss, you have a financial backup.  I realize that’s hard with all the constant financial pressures we’re facing at this time, but it’s doable.  When my wife and I first got married, we barely could pay the bills each month, but we put together a plan (and that’s the important word here: plan) that enabled us to get out of debt and build a savings account.  We took 3 steps to put a barrier between us and being financially ruined.  If you’ve followed individuals like Dave Ramsey or other financial guru books, you’re probably familiar with these 3 approaches.  Step 1 was to save up $1000 in a savings account.  It made dealing with problems easier to handle when they came up.  Step 2 was paying off debt.  The approach we used was the financial snowball.  We started with our smallest debt, and then paid it off as quickly as we could. Once I paid that off, I rolled the money I was paying to that debt to the next smallest debt.  I kept repeating this approach and the amount of money we could commit to the next debt kept growing, thus the snowball analogy. The psychological boost I got from making progress encouraged me to move fast on the remaining debts.  It goes from beyond just numbers to emotions.  When you get emotions involved and you experience gains, it’s easy to continue motivating yourself.  Once we got out of debt and freed up finances, we went to step 3 which was to save up a 3 months savings account.  I know that may sound impossible to go through these 3 steps, but having a plan made all the difference.  The book we used is Financial Peace by Dave Ramsey.  Whether it’s Suze Orman or whoever you want to go with, the key is to find a plan and work it.

5. OFFLOAD CLUTTER

Have you ever watched one of those hoarding shows and wondered why people find such value in all those little things? The truth is that people who have less tend to feel less burdened, some even happier. If you’re feeling uncertain about the future economic picture, cash in that change you’ve been saving and apply that found money to something super practical in your life. Do you have multiple cars, motorcycles, boats, mowers, or whatever? Why not offload them now while people are still in the market for them? When hard economic times come to us all, as the economy slides deeper into a recession or more banks fail, the dollar will lose value, and fewer people will have the money to pay you what these things are worth in your eyes.  They’ll also be holding on to their money, so they’re less likely to buy anything but essential items.  I’ll never forget in 2009 when I bought my first home after the housing market collapsed.  We had no furniture or appliances when we bought our home and when shopping on Craigslist, we were able to find items at extremely low prices because people were trying to make money in the midst of a down market and they couldn’t really ask for much when selling.  If you’re gonna offload something, now would be a good time to do so.

6. LEARN TO BARTER

Bartering can be a helpful strategy in a financial crisis because it allows you to trade goods or services without using money. This can help you meet your basic needs and conserve your cash reserves. It also enables you to build relationships with others in your community and create a sense of mutual support. Bartering frees you somewhat from the money loop of earning, spending, and taxation. Can you hem clothes or fix an engine for someone in exchange for something or some service they can do for you? I may not feel comfortable installing a light fixture on the exterior of my home. An electrician could cost me several hundred dollars, but my neighbor needs his lawn taken care of, and maybe I just saw him installing a light fixture on his house. In that case, it’s time to make a deal. Are you a decent bread baker, and your neighbor has a garden bulging with vegetables?  Why not propose a trade? You are building a network, a community, and functioning in a cashless exchange where the dollar might be losing value anyways. Give it a try.

7. BUILD YOUR COMMUNITY

When the economy turns toward the worst, you would expect things to get more cutthroat and crime levels to rise. They do, but something else happens too. People come together and find strength in what they share. When my kids were smaller, we would meal share with another couple who had small kids. In this way, we could give each other a day off once weekly, buy in bulk and save, and just cook one big meal we could eat for a few days. It was a substantial cost savings.

When someone I knew from an online group was in the path of one of the recent wildfires, I let him move his chickens in with mine until the threat of fire passed. That was free of charge, but I got to eat all those extra eggs while the chickens were in my coup. I have also been part of a “buy in bulk” group where we would save money by buying larger quantities that we would then divide up. Have you ever considered buying part of a whole cow? Cow sharing is a way for consumers to purchase meat directly from a farmer or rancher, often at a lower cost than buying from a grocery store, and to have more control over the quality and source of their meat. 

From work friends to online exchange groups to community pantries, churches, social groups, and schools, you should view an economic downturn as an opportunity to cultivate a strong community from them. As divided as communities seem these days, they are more connected than you might think if you start looking for and making those connections. The time to do that is now.

8. GROW YOUR OWN

Food is the most basic currency on the planet. It will always retain its value and always be in demand. It’s also one of the biggest expenses we have when we rely upon farmers, distributors, grocers, or eating out. The average household spends an average of $3,000 per year on dining out, and that was before prices started climbing. That is the low end. Those nights you don’t want to cook, lunch breaks, quick meals between kids’ rehearsals or sports events, and coffee stops add up quickly. The average American family spends over $15,000 annually on groceries, factoring in this latest double-digit inflationary cycle. At the lowest, when combined, that’s $18,000 per year. Reducing the amount you spend over the long haul can easily be achieved. Plus, it significantly decreases your dependency on corporate farms that may fail as banks go under and the economy bottoms out. It will reduce your dependence on grocery stores that governments may force to cap prices at some point, leading to them not profiting and eventually not resupplying some foods. They’re businesses, after all, not charities.

One home-built lettuce tower could keep you in more salad greens than you could possibly eat. Sprouts and microgreens can provide you with fantastic nutrition even while portion sizes on your plate are dropping because of the economy. If you have even a few feet of land or a deck with sunlight, you could grow kale, potatoes, garlic, onions, or something else. If you have a yard, why not plant a fruit or nut tree? It may yield nothing for a few years, but at our current trajectory, how bad might it be in a few years? Even a 10×10-foot garden in your backyard could feed you when times are rough. Have you ever considered, and would your community allow you to raise chickens, rabbits, or quail? Some people with egg-producing hens recently found themselves with an income source when there was an egg shortage this year. 

The food you grow may not be enough to survive on, but it keeps your mind, hands, and attention occupied. You learn a skill. You reduce your dependence on an unreliable system. You might even end up with something you can trade with. At the very least, you will reclaim some of that $8,000 or more you are currently paying someone else. That will allow you to focus your assets on other necessary things.

I’m not going to go into alternative investments, crypto, gold, and things like that because that’s not practical advice for most folks.  Instead, I’ll link to two videos we have recently done that can provide you with more actionable things to do right now to protect yourself and create a stronger financial foundation to make it through this recession. The first is building that 3-month food supply, and the other is preparing for the recession we are currently at the beginning of.  Please watch those videos or review this video again and determine what you can do today to secure a more stable future tomorrow.

As always, stay safe out there.

LINKS: 

3 Months Is All You Need As A Prepper – Here’s Why

How to Prepare for A Recession in 2023