United States: How Safe Is Your Cash?

If you are not fully invested in equities, bonds, precious metals, real estate or other appreciable assets, your money is probably sitting in cash at your bank. If there were a major financial calamity in the U.S., how safe would your cash be? Or, if you needed to move your money quickly from a U.S. bank to a foreign account for business or other personal reasons, how accessible are your funds? There are several steps you should take today to make sure your money is reasonably safe and available when you might need it.

First, as you are probably aware, deposits in F.D.I.C. insured accounts provide some level of protection of up to $100,000, per bank. So long as the Federal banking system remains financially solid, this provides a first line of defense for you to protect your hard earned money. But this does have its limitations. According to the FDIC, 28% of bank and thrift deposits were uninsured as of last fall. That is a lot of uninsured money!

What if you have cash funds in excess of $100,000? You could move to multiple banks offering the same type of FDIC protection, but this can become cumbersome. Or, if you know the ropes, you can retitle how you hold the ownership of your savings with your favorite bank, without having to go to numerous financial institutions.

Here is an example of how properly retitled savings accounts at the same bank can obtain FDIC coverage: John Customer deposits $100,000 at his local bank in his name. Next, he opens a joint ownership account with his wife, Jane Customer, for $200,000. Then, he opens up a $300,000 account that will go to his three siblings when he dies, Charlie Cash, Debbie Doe, and Billy Bucks, $100,000 each. And too, he opens four additional accounts totaling $400,000 payable to his children upon his death. Finally, he sets up an IRA account in his name for $100,000. The entire $1.2M is fully insured by the FDIC at the same bank. And you must use great caution is establishing these accounts because there are strict limitations that must be met.

But is it always the safest and best route to keep all of this money at the same bank? Not necessarily.

Keep in mind that if you have taken steps for estate planning, or more aggressive asset protection planning, with your cash safely titled in a Family Limited Partnership or Family Trust, then the above formula doesn’t necessarily work. Retitling cash accounts as described above would most likely destroy estate planning, and asset protection planning, efforts. In this case you will need to structure cash deposits into different named entity accounts, and at different institutions. Exactly how you do this will depend on the amount of the cash and how sophisticated your estate planning and asset protection planning are. And too, the different entities seeking to obtain FDIC protection cannot be created for the sole purpose of obtaining additional FDIC protection and must have legitimate business purposes, which are generally not difficult to establish.

Considering the events of September 11, this has also greatly changed the need to consider accessibility to your hard earned money, and options outside of the U.S. banking system. As you are probably aware, the U.S. government has rigid compliance and transfer rules, which affects deposits of moneys. Reporting international transport of currency of monetary instruments, and wire transfers, of amounts of $10,000 or more, is reported to the government. And if your bank teller even remotely believes that something is suspicious about you or your transaction, or if they just don’t take a liking to you, they are required to file a Suspicious Activity Report to the government. These are routinely filed every day by the thousands.

Stiff financial and criminal penalties, including forfeiture of your money, exist for failing to comply with these requirements. It is always recommended that full and complete compliance with money transfers be met.

Following September 11, the new Patriot’s Act has made money transfers even more burdensome, particularly when the destination account ends up in a bank outside of the U.S. Just this past week, I was very surprised with the difficulties I ran into on behalf of a client trying to invest some of his hard-earned money into another country. The client is a very honest, hard-working businessman that I have known for years, and has had a long established banking relationship with his banker. The moneys he wished to transfer out of one of his accounts were going towards the purchase of real estate outside of the U.S.

The bank, a large, well-known financial institution, first refused to complete the wire transfer, since the money was ultimately being credited to an account outside of the U.S. and they were "concerned" about being involved in the international transaction. Only after several days of delays and considerable threats of legal action by the client towards the bank, did they finally agree to complete the wire transfer. What we are now seeing is that the banks are uncertain as to how to comply with the new banking requirements propounded in the recently enacted Patriot’s Act. Some bankers are starting to act paranoid when they see something out of the norm occurring with even an established banking customer.

And too, setting up new accounts outside of the U.S. today can take considerable amount of time and effort with all the due diligence, I.R.S. forms, and internal compliance that must be met. Weeks and even months is the norm for setting up a new bank account outside of the U.S. today. If you needed to take swift action to move your money outside of the U.S. for whatever reason, do you have all the steps in place now?

Just think if there were a major banking catastrophe in the U.S., similar to what occurred in the 1930s right here at home, in Europe in the 1940s, and just these past months in Argentina, and you wished to preserve your funds by transferring to another, safer, accessible bank account outside the U.S. National banking reserves in the U.S. banking system are said to be around only 1 ½ % of deposits, while in other established banking jurisdictions it is not unusual for reserves to be 35%, or even higher, for customer protection, should there be a run on money. Are you ready to take action today if the U.S. banking system wasn’t able to honor your cash demands and declared a "bank holiday" or placed restrictions on amounts to be withdrawn?

The steps to take: First, make sure that you have no more than $100,000 in an FDIC insured account. Second, consider retitling accounts within the same bank for additional FDIC protection. Third, if you have put into place estate planning, or more aggressive asset protection planning steps, then you will need to establish multiple entities at different financial institutions to obtain FDIC protection. Finally, establishing an offshore bank account and relationship with a good, reputable bank, is essential if the free movement of money is a concern to you.