You may remember somebody assuring someone by saying, “It’s like money in the bank” to imply that something was safely secure. This hypothesis was believable from about 1935 to 2008, when the housing crisis sent the economy into meltdown mode. It has become clear that FDIC insurance is not all it’s said to be.

People became concerned about their bank deposits in 2008 when the values of homes dropped and the stock market tumbled. FDIC, which insures bank deposits, quickly assured the public that their bank savings were in fact safe, and they went so far as to increase the insurance coverage on bank deposits from $100,000 to $250,000. An entire marketing campaign was begun by FDIC officials to give the public confidence in its stability. Part of the campaign stated that the FDIC could get a $500 billion loan if it needed it. This sounds reassuring except for the fact that U.S. banks have over $5 trillion in deposits. They were hoping you did not put two and two together.

The myth is that your money is backed up by an asset when in fact is not. The only thing the dollar is backed by is the confidence you put in it. And it is further complicated by the 2010 Dodd Frank legislation that allows for depositor money to be used to stabilize failing banks. The banks could not be a worse place to park our money.

Fractional reserve banking gives the death blow to banks. Only a small portion of the money the bank takes in is actually held, because the government incentivizes banks to loan out more money than they have. In fact, 10% to 33% of deposits is all that banks are required to keep on hand. Money is literally created to be able to make this work, and it happens every day.

In a case of real world economic turmoil, FDIC insurance would be as useful as Monopoly money. It is not prudent to depend on it in our savings strategy. We offer alternatives to this that are rooted in integrity and will give peace of mind.

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