As a financial advisor, I have seen how marketing has conditioned the vast majority of Americans to store their money in banks. However, there are many other options for money storage that most people rarely consider. To understand why this is, we will explain what happens when individuals place money in a bank, versus another institution like an insurance company.
Most people store their money in banks for short and long-term storage because of the perceived safety of banks. FDIC insured banks insure people up to a specified amount, which is currently $250k. Due to insurance and the “too-big-to-fail” image, Americans believe that the federally regulated banks are the most risk-free institution for their money.
However, there are many aspects of banks that many people do not realize. First and foremost, is the fact that a bank is accountable to their stockholders, not to you; in other words, they are focused on maximizing money for their stockholders instead of those who store their money with the bank.
This pressure from stockholders is what forces most banks to take risky moves with their depositors’ money, in order to maximize the short-term profits of their stockholders. This sort of leverage stockholders hold over banks, makes banks more volatile than most people realize. Exposing yourself to such risk is rarely proper wealth management, and yet the majority of Americans continue to do so.
Mutual Insurance Companies
Mutually owned life insurance companies follow a different model. This type of insurance company doesn’t have stockholders to satisfy, and the only parties they must answer to are their policyholders—in other words, you. The executives at a mutual insurance company have it in their interest to guarantee the safety, security, and return of their shareholders’ resources.
Insurance companies, conversely, are regulated by the state. Although each state handles insurance companies differently, generally states hold insurance companies to more stringent standards than the federal government holds banks.
Most individuals have no idea about how banks and insurance companies truly work, even though these points are public knowledge. With a financial planner or wealth manager, you can be sure that you are getting the latest financial news in order to maximize the way you store money, earn interest, and pave the pathway to becoming your own banker. Contact us for a free consultation today.