Banking Risk: Where to Keep Cash

With the collapse of Silicon Valley Bank, everyone is concerned about protecting their cash, and rightfully so. Understanding the fundamental difference between banks and custodians like Schwab is essential. This crisis is not over yet.

If you have significant amounts of cash in your business or family, it is critical that you are smart about where you keep it. The first step is calculating how much cash you need for daily operations so you can quantify your "excess" cash, the amount you need but do not regularly use on a daily or weekly basis.

Operating Cash Strategy

For your operating cash, which is often tied to various banking services, operational efficiency almost requires keeping this at a bank. Two types of banks to consider are: a mid-size, entrepreneurially-minded bank with a good track record supporting business owners, and one of the largest banks considered "too big to fail."

Excess Cash Strategy

For excess cash you need but do not use frequently (no more than once monthly), two options exist.

First, negotiate with your bank for deposit insurance, though this comes at a cost and should be documented in writing.

Second, open an institutional account at a respected custodian. Whitwell & Co. typically uses Schwab and implements "money-link" accounts, making fund transfers simple while providing checks and debit cards.

Why Custodians Are Safer

Custodians are structurally safer than banks. Choose only the largest, most profitable custodians for three reasons: profitable custodians will not cut corners to improve financials; large custodians invest substantially in digital and physical security; and the largest institutions have accumulated billions in equity serving as financial buffers against unexpected challenges.

Originally published on LinkedIn, March 12, 2023. Republished here for the Whitwell & Co. insights archive.