Have you ever hear of a bank bail-in? You read that right, bail-in, not a bail-out. I hadn’t heard of this concept until recently and wanted to share it with you so that you understand how it works. Listen in to understand how this buzzword could be used to trick you into worrying about your savings. You’ll also hear the latest about the Fed’s plans for interest rates in the coming years. Stay informed of the latest in retirement headlines on this episode of Retirement Starts Today.We're all familiar with bank bail-outs, but have you heard of bank bail-ins? Click To Tweet
Outline of This Episode
- [1:22] Is bail-in a new buzzword?
- [6:04] What does FDIC insurance cover?
- [9:42] What protections are offered for investment accounts?
- [12:27] The Fed is planning to hold rates at zero for 5 years or more
- [15:11] What is a bond barbell?
What is a bank bail-in?
We’re all familiar with bank bailouts. These government-funded cash injections designed to prevent the collapse of a failing bank. Bank bailouts are unpopular across the board, from democrats to republicans to everyone in between.
A bail-in is also a way to prevent the collapse of a failing bank. But rather than being funded by taxpayers, bail-in money comes from deposit holders and creditors. The bank is allowed to convert its debt into equity to increase its capital requirements. How does this affect your money? Listen in to hear why a bank bail-in isn’t as worrisome as you may think.Listen in to hear why a bank bail-in isn’t as worrisome as you may think. Click To Tweet
What does the FDIC insurance cover?
The FDIC insures each bank account up to $250,000 per person per bank. This insurance covers checking accounts, savings accounts, money market accounts, CD’s, etc. However, the FDIC doesn’t cover stocks, bonds, annuities, and life insurance. Generally speaking, the FDIC doesn’t insure anything that is considered to be an investment.
What is SIPC?
Now you know that investments aren’t covered under FDIC, but are investments covered by any type of insurance? Similar to the FDIC for bank accounts there exists the SIPC for brokerage accounts. SIPC is the acronym for Securities Investor Protection Corporation. SIPC covers up to $500,000 in the event that your brokerage financially fails. It is important to remember that this insurance is not protection against poor investments. Did you know about SIPC?Could a bond barbell be your answer to zero interest rates? Click To Tweet
What do zero interest rates mean for your portfolio?
The Fed announced recently that it was planning on keeping interest rates near zero for five years. So, what does this mean for you? Well, unfortunately, that means that bonds won’t pay much interest in the near future.
Do you need to drastically change your investment outlook? Obviously I’m not here to give you investment advice, but if you have a Swiss Army Knife portfolio that is adaptable then you should be just fine. Learn why you may want to start using a dynamic withdrawal strategy and how that can help you weather any storm in retirement by listening to this episode of Retirement Starts Today.
Resources & People Mentioned
- Investopedia article about bank bail-ins
- Kiplinger FDIC article
- Nerd Wallet SIPC article
- Bloomberg article Fed Holding Rates at Zero
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