SVB and Cash Management

We’ve heard more about Silicon Valley Bank in the last week than we’ve heard since its inception in 1983. It wasn’t widely known by the average American, but now you’d be hard pressed to find someone who hasn’t heard of it. It harkens back to March 2020 and the shortage of toilet paper when everyone feared a shortage so they ran to the nearest store and bought 6+ months of toilet paper. In this instance, it was bank deposits that everyone feared would run out. As we know, deposits up to $250,000 are FDIC insured, but most of these deposits far exceeded that amount.

Which begs the question: Why was all of this cash sitting in a bank earning a measly interest? It doesn’t matter if you’re a business earning +$1 million, or an individual with excess cash after your bills are paid: cash management is a huge portion of financial planning and wealth building. Keeping large sums of cash in a bank, often earning less than 0.5%, means that with inflation (an average of 8% using CPI data in 2022) you’re actually losing money. The meager interest earned does nothing to offset inflation. As investment advisors, we seek to correct some of the behaviors around finances and investments, and SVB teaches us a valuable lesson about cash management.

There are many places to put your extra cash where it actually works for you. It isn’t as exciting as a real estate deal or venture capital but setting up recurring cash contributions to accounts such as money market funds, treasury bills, or even a taxable account can make a great deal of difference down the road due the power of compounding. Alternatively, if you’re a business owner and need your cash in the bank, but it’s too high of a balance to be insured, you might consider an Insured Cash Sweep© (if your bank has the program) to have FDIC coverage above $250,000.

Please let us know if you’d like to talk about planning for cash management, or if this article gave rise to any questions. We look forward to hearing from you.

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