Are Banks Safe? The Top Alternative to Saving in a Bank

Cash value, where to store your cash

Where are you storing your cash? What are the implications of that choice? Because when it comes to liquidity, growth, and certainty—banks might not be your best bet. We suggest adding cash value insurance to your financial strategy.

The Importance of Cash

You’ve heard the phrase, “Cash is King.” What it suggests is that cash, and cash flow, are more valuable than any other investment tools. 

The phrase itself is widely used in the world of finance, but we think that it applies a little differently. When it comes to your money, we suggest storing it somewhere safe, liquid, and that allows for growth without risk

So how many assets do you know that fit the bill? 

In reality, few assets offer the same guarantees as cash value life insurance. This even includes the banks. 

Bailing-In the Banks

The banks seem safe, but are they really the safest place to store your cash? The answer is…complicated. 

Recently the FDIC released a video urging citizens to keep cash in the banks, but there’s concern about a possible bank bail in. Not to mention, the new stimulus bill has hidden language throughout. 

In fact, according to Glen Beck’s radio show a few weeks ago, the FED has removed the reserve requirements for banks during this time of crisis. That means that the banks have bit off more than they can chew, and don’t have enough cash to meet the demands. 

Those in need of that cash have been directed to process transactions through the Fed’s discount window. That translates to government forms and long waiting periods for people to receive their own money. 

What’s more, is that due to a feature in the Dodd-Frank act, once you’ve deposited your cash in the bank, it’s considered a non-secure loan. That means it can be considered bail-in money for that bank if they go under—forcing depositors to take the loss in order to save them. And it’s entirely legal. 

Still think the banks are the best place for your cash?

A Better Place to Store Cash

You can’t completely escape the need for a bank account, but there is a better place for your emergency/opportunity fund (your savings). As an asset, life insurance offers certainty; peace of mind no matter the state of the world. 

We recommend participating whole life insurance, from a mutual insurance company. Because not only does it function as a protection asset—it provides a cash value account that provides an emergency, opportunity, and legacy account.

Mutual companies actually function similarly to co-ops or credit unions. Rather than aiming to satisfy shareholders, these companies are beholden to the interests of the policy owners. This ensures that the focus is on long-term growth, as opposed to quarterly profits (and risk).

Benefits of Cash Value Life Insurance

It’s easy to overlook whole life insurance as something to be used in the future, but it has real benefits you can enjoy while you’re alive. Properly structured participating policies (dividend paying policies) with mutual companies offer guarantees such as:

  • An annual guaranteed dollar increase to your cash value, with a new “floor” each year— even if you don't receive dividends, you're guaranteed a certain increase in Cash Value .
  • Partake in profits. In addition to the guaranteed dollar amount, as a policy owner you get to partake in the profits of the company. That results in dividends, which have historically been paid. This is added to your guaranteed Cash Value.
  • Guaranteed death benefit—because the policy is permanent, it will pay out. You cannot outlive your death benefit.
  • Guaranteed level premium—no guesswork or unexpected changes, your premium stays the same. 
  • All gains are locked in—once your cash value increases, it won’t decrease (unless there are unpaid policy loans)

In fact, life insurance is traditional—it’s been around for nearly 200 years, and mutual companies have historically paid dividends for just as long. That means they've been paid through every world war, stock market crash, and recession–even the Great Depression. In fact, one such company has paid dividends ever y single year since 1869–that's one hundred and thirty-one years. Here’s a study of one such company from 1980-2020. 

40 years ago:

A chart depicting projected cash returns vs. actual cash returns of a whole life insurance policy.
This 45-year-old male was guaranteed 3.13%, and actually earned 4.8%.
A chart depicting projected cash returns vs. actual cash returns of a whole life insurance policy.
A 35-year-old female earned 5.86% on her Cash Value compared to the projected 4.74%.
A chart depicting projected cash returns vs. actual cash returns of a whole life insurance policy.
In this scenario, a 50-year-old man earned 5.89%, instead of the projected 4.05%.

In each scenario, the policyowners actually earned more than what the company projected. We can be grateful for this for two reasons: the company’s are consistently surpassing their minimum guarantees, and we can guess that clients today will have more than projected.

Notice the strength of the guarantee: once a dividend does get paid, the guaranteed floor is raised AND it is guaranteed to rise every year, even when no dividends are paid. 

Creating a Legacy with Cash Value

The reason this is so significant, is because your cash will always be accessible, and you can rely on mutual companies to make good on guarantees. During times of crisis, that means that when you need access to your cash—no matter what the reason—it will be available to you. Even better, the money will continue to grow. 

The earlier you have a policy in place, the more you can benefit. And when the time comes, your policy can be used for retirement and legacy strategies. It evolves with your needs. 

What Can You Do?

It’s pretty straightforward: pay all of your premiums and paid-up addition rider that you can. Think of your premiums like your savings—although it takes a few years for your contributions and your cash value account to “break even,” your cash value will exceed your contributions in the long run. We’ve seen that in the above illustration. 

We also suggest encouraging your friends to stop storing cash in banks and money markets, and start looking to life insurance. 

Apart from that, once of the most important things you can do right now is create! During the black plague, when England’s theatres were closed, Shakespeare wrote Macbeth and King Lear. When the University of Cambridge was closed due to Bubonic Plague, Isaac Newton developed his theories on calculus, optics, and gravity. 

The are unbelievable times…you can interpret that positively or negatively. But think of what you can do with the positive interpretation!

When you buy a participating whole life insurance policy, you aren’t just buying a product, you’re buying a business. You write checks, write checks, write checks and receive the benefits for life. For more information on whole life insurance, check out our permanent insurance primer here.