IMPORTANT DISCLOSURE INFORMATION
The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing. Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.
Are my bank accounts safe?
The sudden collapse of SVB Financial, a California-based bank focused on technology startups, has raised important questions about the health of the U.S. banking system and the government’s response to yet another crisis in the financial sector. This was followed shortly with solvency issues at Signature Bank.
First, let’s address your current bank accounts. If your money is in a bank insured by the Federal Deposit Insurance Corp. and you have less than $250,000 there, it is safe. If the bank fails, you’ll get your money back. Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch. Credit unions are insured by the National Credit Union Administration.
If you have over $250,000 in an individual account, the amount over $250,000 is considered uninsured and you may want to consider moving the remainder of your money to a different financial institution. Please know that joint accounts (since there are 2 owners) are insured up to $500,000.
Now that we know what amounts are protected by the full faith of the US government, I want to take a discuss what has caused some of this turmoil and uncertainty.
Silicon Valley Bank had already been hit hard by a rough patch for technology companies in recent months and the Federal Reserve’s aggressive plan to increase interest rates to combat inflation compounded its problems.
The bank held billions of dollars worth of Treasuries and other bonds, which is typical for most banks as they are considered safe investments. I order to understand the consequence of those bonds, I want to give a reminder how bonds work (and are affected by interest rates). I am going to review a slide that Chris Beale and I used to use in our Successful Money Management classes that we taught in adult educations throughout the state.
Given that example, the value of previously issued bonds has begun to fall because they pay lower interest rates than comparable bonds issued in today’s higher interest rate environment. Silicon Valley Bank customers were largely startups and other tech-centric companies that needed more cash over the past year, so they began withdrawing their deposits. That forced the bank to sell a chunk of its bonds at a steep loss, and the pace of those withdrawals accelerated as word spread, effectively rendering Silicon Valley Bank insolvent.
With that being said, this is something that we take very seriously and will continue to monitor here at New England Capital. As always, please reach out to us with any questions or concerns you may have.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.com. Please Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.