Money in the Bank is Not Risk-Free – Read the Fine Print

Most of the people who read this weekly blog don’t trust the banking system. Some of you out there may not even want to keep any of your money in the bank. I don’t blame you. We need to have some of our funds at the bank for living expenses and emergency money.

This week I received an email from one of the banks I do business with. It’s a major wirehouse and a name well known to you all. What I read was shocking and appalling. It reinforced my hatred towards the whole fiat banking system. The Online Access Agreement was updated and this update was sent to all of their customers. This email covered investment and insurance products and of course, the juicy part was hidden at the end. At least they have no shame; the text was in bold letters. Almost as if they were saying we warned you and here it is right in your face.

The bank will never tell you about the safety of investment and insurance products

I wanted to copy the email text itself so it is not altered in any way.

Investment and Insurance Products are:

  • Not Insured by the FDIC or Any Federal Government Agency
  • Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate
  • Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested

I would suggest reading those three short lines again.

Let’s say it in plain English. Investment and Insurance Products at the bank are not insured. Investment and Insurance Products at the bank are not an obligation of the bank or guaranteed by the bank or anyone associated with them. Investment and Insurance Products include risk, and you could lose the entire principal. In short folks, all your Investment Products at the bank or any of their affiliates could just disappear. This is the kind of stuff in that big pile of papers when you open an account that no one reads thoroughly. We have been conditioned to think that our money is safe with a bank, even safer than if we hold it ourselves. It is time to face the reality that this is no longer the case.


All our money is always available at the bank, right?

Did you ever wonder about your money on deposit at the bank? It’s right there in your account because your balance says so. There is a little thing that the bank system operates on. This little system at the bank is called fractional banking. It’s a great way to generate fees for the bank. It’s not such a great thing for your deposits if even 10% of deposit holders showed up at the bank at the same time to withdraw their money.

Fractional reserve banking allows any Federal Reserve Bank to lend out up to 95 cents for every dollar deposited. State banks can lend the entire dollar out while some state banks can only lend 85–95 cents out for every dollar deposited. Many banks can generate $5,000 of fees for every $1,000 deposited by us at the bank. The bank lends out our money and lends it out by many multiples to generate billions in fees. If all our money is being lent out multiple times over, how can our deposits be sitting in our account as our balance says? It’s not folks; it is just digits on a ledger. The bank would never tell us directly that our money isn’t there at the bank. That’s why a bank run would be such a disaster. That’s why right now the citizens of Lebanon are only allowed to pull out $200 a month no matter how much money the customer has on deposit.

The bank could never just take our money, could they?

A bail-in by definition provides relief to a financial institution on the brink of failure by requiring the cancellation of debts owed to creditors and depositors. A bail-in is the opposite of a bail-out. Over 400 banks failed during and after the financial crisis of 2008. In 2013, depositors at bailed-out Cyprus’ largest bank lost 47.5% of their savings exceeding 100,000 euros ($132,000 at that time). This could never happen here, right?

Banks constantly preach FDIC insurance. We all know there isn’t enough insurance to cover everyone, well we all should at least know that. Each account is insured up to $250,000. Sounds like absolute hogwash to me. There are far more in deposits at financial institutions. What we do know is that FDIC insurance does not cover annuities, mutual funds, ETFs, stocks, bonds, life insurance policies, US Treasury securities, municipal securities, or money markets in an IRA. When was the last time that the bank or investment company told you this about your money?

When the financial system caves in, it will be everyone for themselves. I can see it now, we warned you and all the disclaimers are right there for you to read. We even sent an email. You were warned. Well, this all makes me feel very uneasy about our money in their bank funding their system. Not to mention our investment accounts are going to take a beating when the economy fails and is brought to its knees with all this unpayable debt and market bubbles and everything else that is going on.

And what is the answer for all of this from our leaders? Well, let’s print and spend more. We can print as much as we want and take on as much debt as we want to. And the whole world can do it too. Just keep speculating and borrowing and everything will be just fine. None of this sounds fine to me when my money is concerned. It shouldn’t sound fine and safe to you either. That’s because it is not.

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