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Thread: Best place to keep your money?

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    Default Best place to keep your money?

    Where is the best place to keep your money? Obviously in a secret hidden compartment inside something no one would ever guess, is a good idea for cash, but what about bank accounts? I'd choose a credit union over a regular bank in a heartbeat, but is there an even better option option out there? Especially when it comes to earning interest?

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    Default Re: Best place to keep your money?

    there are actually a lot of 'layers' to your question. Assuming that you are concerned about the 'safety' of depositing your US dollars, following is the basic risk assessment from highest to lowest ...

    - small US division of a large foreign bank ... where the parent has huge exposure to EuroZone debt ( example ING Direct )

    - large US financial center banks ... which have exposure to EuroZone debt as a counterparty ( example Citi, Chase )

    - US credit unions ... which have potential 'diversity' issues given that their loss risk exposure is concentrated in the consumer sector ( mortgages, auto loans, credit cards ) over a relatively small geographic / economic area ( thus subject to potential high loss risk if area real estate values go into the toilet, if one major area employer closes its doors throwing a large percentage of CU members in the unemployment line etc. )

    - US regional banks ... which add commercial lending to consumer lending, and generally have less potential 'diversity' based loss risk issues given a larger geographic / economic area with branches in multiple states ( thus much less subject to one particular real estate market or one major employer going out of business )

    - Direct gov't subsidized banks ... there's only one right now, GMAC = ALLY Bank


    All of the above offer either FDIC or NCUA insurance protection. However, both the FDIC and NCUA insurance funds are now 'broke' as the result of previous bank and credit union failures. There is an implication that the US gov't will 'bail out' these insurance funds, but actually getting your insurance payment in the event that your bank fails and can't be quickly sold to a solvent bank could take months or years.


    There's also the issue that all of the above are dealing with US dollars, which at the moment are fairly 'strong', but which could become fairly 'weak' at any time. Hedging this risk would involve opening an account denominated in different currencies. This can be done domestically via specialty banks like EverGreen ( but this requires very high minimum balance like $10,000 ). This can also be done by simply travelling to Canada or another foreign country and opening an account in a local bank ( without a minimum balance hurdle ). However, with new US restrictions on funds transfers across the US border, the foreign bank option is now going to almost certainly require physical travel as well as carrying cash through US customs in your purse in order to access your money.


    And of course there is also the option of purchasing physical gold and/or silver. Over the past few years this 'cash equivalent' has paid the best 'interest rate' !

    If you're talking about significant amounts, you can also consider the direct purchase of US gov't bonds and cut the banks / bank loss risk out of the equation entirely. However, I believe the minimum increment is $5,000.

    ~
    Last edited by Melonie; 12-05-2011 at 12:27 PM.

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    Default Re: Best place to keep your money?

    I have a coupla questions about these investment options:

    With respect to FDIC insurance, it's a US govt. obligation so the default risk is essentially equivalent to a Treasury note. As far as the time factor - do you know what the longest time to payout (or access to cash at a successor institution) in any of the thousands of banks they've taken over has been?

    With respect to gold bullion, what transaction costs (fees, spreads, commissions, shipping, etc.) are entailed? What about ongoing expenses - insurance, storage, etc. I think, theoretically, a risk of loss due to theft, fire, etc. should be factored into the investment decision.

    As far as the Evergreen foreign currency accounts, what costs (exchange spread, initial and ongoing fees) would apply? In many such accounts the fees are embedded - that is they're netted out of the return or yield, and aren't clearly disclosed or apparent.

    Thanks.

    James

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    Default Re: Best place to keep your money?

    it's a US govt. obligation so the default risk is essentially equivalent to a Treasury note. As far as the time factor - do you know what the longest time to payout (or access to cash at a successor institution) in any of the thousands of banks they've taken over has been?
    well that's not exactly correct. Like Fannie Mae or Sallie Mae, FDIC is a gov't agency. But by law the FDIC's obligations are limited to paying out insurance 'reimbursements' to bank depositors based on insurance 'premiums' charged to the banks whose depositors they cover. Right now the FDIC insurance fund that was built up over decades via collection of those insurance premiums from healthy banks is essentially 'broke'. Thus future payments of FDIC insurance 'reimbursements' are limited to the ability of the FDIC to raise money via future insurance 'premiums' charged to the banks. The FDIC has recently increased the cost of those FDIC insurance premiums substationally ... but even so the scenario exists where widespread future bank failures would translate into depositors waiting for years to receive 100% of their 'money back'. Yes there is an implication that, like Fannie Mae, the US gov't could agree to directly 'backstop' FDIC financial obligations when the agency itself is no longer able to do so, but at this point such a 'backstop' is implied and not a matter of law. This differs from US Treasury notes and bonds which have the direct and first priority backing of the US Treasury !

    As to 'delays' in recent FDIC payouts, with almost no exceptions the FDIC has been able to work out a quick turn sale of every bankrupt bank to a larger solvent bank ... thus the only FDIC payouts were actually used to de-facto reduce the purchase price of the bankrupt bank, and depositors at the bankrupt bank simply had their accounts shifted to the larger solvent bank. However, there is no guarantee that these sort of quick turn sales can be arranged for every future bank failure.

    As far as the Evergreen foreign currency accounts, what costs (exchange spread, initial and ongoing fees) would apply? In many such accounts the fees are embedded - that is they're netted out of the return or yield, and aren't clearly disclosed or apparent.
    Evergreen is a bank offering foreign currency 'savings accounts' and foreign currency CD's. Obviously there are some embedded exchange rate margin issues. But these are also 'unique' financial products compared to standard forex futures or foreign currency ETF's in that they do carry some element of FDIC insurance protection. See


    With respect to gold bullion, what transaction costs (fees, spreads, commissions, shipping, etc.) are entailed? What about ongoing expenses - insurance, storage, etc. I think, theoretically, a risk of loss due to theft, fire, etc. should be factored into the investment decision.
    It depends on whether you're talking about small quantities or large quantities. See As of this morning their selling price for a certified and sealed 1oz bar is $1746 versus a commodity market large volume price of $1721.

    As to storage 'costs', that depends on what you feel 'safe' with in the way of storage. A bank safety deposit box will cost you $10 a year ... but is subject to gov't inspection. You can also both save on 'costs' as well as avoid the safe storage issue by purchasing gold via a 'Pool' account ... where your gold is held by the seller in an extremely secure depository facility. Using the same Kitco example today's buy price for 1oz of gold held in their 'Pool' account is $1730. Of course the downside is that you don't actually have the gold bar in your hand, thus in an Armageddon scenario you may have trouble 'cashing in' !!! Personally speaking, I like being able to see and touch the gold I actually own !

    ~
    Last edited by Melonie; 12-06-2011 at 04:37 AM.

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    Default Re: Best place to keep your money?

    this interesting 'tidbit' came out today ... from


    (snip)""The Coming Worldwide Bank run"

    Lost in the clamor over the central banks' "let there be liquidity" pronouncement, Standard & Poor's just downgraded fifteen major U.S. and European banks.

    The downgrade doesn't mean Bank of America, Goldman Sachs, Citigroup, Barclays, UBS, Wells Fargo and others will close shop tomorrow. But the long-term credit downgrade does raise questions about their stability.

    After all, the 2007-2009 financial crisis has supposedly passed. But during the two-year "recovery," did most big banks really return to sound fiscal health? Well, Standard & Poor's downgrade speaks for itself.

    One reason for the downgrades was Standard & Poor's own revision to its rating system. Nonetheless, CNBC reported (11/29), "The outcome of the re-rating of the biggest banks was worse than S&P has forecast for all banks."

    And apparently, the big banks were in worse shape in 2008 than most people realized. Thanks to the Freedom of Information Act, Bloomberg just revealed that banks got more bailout money from the Federal Reserve than was previously made public:

    "The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy." ~ Bloomberg, November 28

    And in light of the downgrades, what does this revelation say about assurances of financial stability that come from the banks today?

    Please consider this insightful excerpt from the September Elliott Wave Theorist:

    "The Coming Worldwide Bank Run"

    "In the late 1990s and mid 2000s, the loan-to-deposit ratio for U.S. banks was nearly 1.00, meaning that almost all deposits were lent out. That shortfall alone was a serious problem, because if even 5% of depositors had decided to withdraw their money, banks would have been unable to pay. Some of the banks' loans were quickly callable, but by 2006, the credit-fueled real estate boom had claimed a large percentage of outstanding loans, both inside and outside the banking system. These loans are not quickly callable. The problem was serious in 2002 and enormous in 2006. Now it has become acute, because many loans are becoming fossilized, as the market for mortgage investing has dried up while foreclosures on the 'collateral' have been slowed by court actions and politics.

    "The specter of a banking panic has become far darker since the collateral for bank deposits -- land and buildings -- has fallen globally in value at the steepest rate since the Great Depression. One day this shortfall in collateral value will impress itself on people's minds, and there will be an unprecedented run on banks around the globe.... Yes, I know about the FDIC, but I don't believe it will be able to fulfill its promises when most banks go bust."


    Notice the phrase in the last sentence of the quote, "most banks" This obviously implies that some banks are safer than others.(snip)

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    Default Re: Best place to keep your money?

    I've been looking at gold prices, but I'm more of a long term investor. I guess short term investments scare me because it seems like I'm investing a lot of money hoping for the prices to increase. If I buy gold where would you consider purchasing from? And where would I sell? I'm sketchy about buying anything on ebay, but I don't want to pay mint prices.

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    Default Re: Best place to keep your money?

    I've used several times in the past to both buy and sell small quantities of 1oz gold bars. They charge about a 1.5% spread ( a.k.a. commission ) versus the spot market commodity exchange prices.

    For larger quantities, cannot be beat !

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    Default Re: Best place to keep your money?

    Probably should have asked this in my last post...

    What are your thoughts on silver? A friend suggested silver and claimed that the price was low right now. I've checked out some historical charts; and while the price does seem to be low right now in comparison to the last 6 months, I'm worried that with the economy improving the price of such commodities will start to decrease.

    I don't have the time to invest in researching in depth and I do value your opinion, Melonie.

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    Default Re: Best place to keep your money?

    ^^^ while Gold does have a few 'industrial' uses ( from computer connectors to luxury watches to tooth fillings ), it is primarily traded on the basis of 'investor' demand. As such, the conventional thinking is that Gold is an alternate form of money that provides an intrinsic store of value ... with rising demand / rising prices when paper currencies face problems ( inflation, stability etc. ).

    Silver, on the other hand, has lots of 'industrial' uses ( from photography to hi frequency cables to catalytic converters - a very long list ). Silver no longer has the same 'mystique' as a monetary metal that gold does, because so much of silver's demand / price equation is driven by industrial consumption. This can be particularly problematic if, as some talking heads claim, China and India are experiencing slowing growth which in turn will vastly reduce their industrial demand for silver. Japan has already reduced industrial consumption of silver due to the industrial activity disruptions related to their nuclear reactors, as well as the negative export profit effects of a very strong Yen ( relative to US $ and Euro ) . Thus the question of whether or not silver is 'underpriced' right now is actually a very complex equation.

    Adding to silver's volatility is the fact that a good portion of whatever monetary demand exists for silver stems from middle class investors who simply can't afford to deal with the ~$1700 minimum increments per ounce of gold. For better or worse, those middle class investors are typically 'weak hands', meaning that they may be pressured to liquidate their silver holdings in times of economic stress. Like all 'margin call' situations, this can aggravate price drops.

    The 'gold foil hat' crowd would tell you that copper or crude oil are a better commodity investment than silver, and that gold is a better monetary investment than silver. And from a personal standpoint, while I own a small amount of physical silver, my main 'exposure' to silver is via owning stock shares in a Chinese mining company.

    ~
    Last edited by Melonie; 12-30-2011 at 03:51 AM.

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