Banks Flushed with Cash Can Hurt Your Finances
An eye-popping $2 TRILLION in cash has been stashed in deposit accounts at U.S. banks since the COVID-19 pandemic first hit the country. This surge of money into banks is unlike anything we’ve seen.
Several factors have contributed to the cash surge, including $600 billion in government-sponsored loans to small businesses, direct checks to individuals, and expanded unemployment benefits. Plus, Americans had fewer options for spending their money while on lockdown.
Though the security of knowing banks are flushed with cash, keep in mind it’s uncertain how long will the $2 trillion remain in the bank.
Most Americans rely on banks to keep their money safe from loss or theft, to make payments easily and inexpensively, and to maintain records of financial transactions. However, with the national average interest rate at 0.1%1 for savings accounts, it’s no surprise that individuals don’t expect bank accounts to generate much interest income. What’s worse is that banks are not expected to adjust interest rates any time soon because they don’t need the money.
Low interest rate may seem like a blessing but it’s more like a dangerous butterfly effect. While low interest rates are good for buyers, it can be catastrophic for sellers. Income from bank loans is becoming nearly nonexistent, which can stop investors from taking these bonds and adversely affect the financial health of a bank when it runs low on cash. Insurance companies that rely on interest-based returns from premiums to support coverage may have to raise premiums. Of course, low interest rates directly impact those living off interest-income, such as many retirees. If that group of people reduces their spending, the overall economic activity may slowdown, which may cut sales and profit.
For many, banks play a key role in their personal finances. But most times it’s not enough to rely on to protect principle and grow your accounts. It’s always a good idea to revisit your accounts to make sure they’re still in line with your goals. Let’s chat about what a customized comprehensive retirement strategy looks like for you. Click the link below, call 1-800-467-8152, or email email@example.com to choose a time.
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