In this era, sadly, banks are corrupt, unstable, offer horrible customer service, and in many cases, are downright criminal. Regardless of this, you need to use banks in order to conduct business. They are necessary evils.

However, that doesn’t mean you should use them for everything. You need to use banks for the minimal functions a bank requires, and nothing else. For all other financial functions, you should use credit unions, investment firms, and/or your own storage (be that a safe, cryptocurrency, or whatever).

This is for several reasons. First, there is a legal precedent that states that if you deposit money into your bank, that money stops being your money and starts being the bank’s money. People are under the mistaken impression that money in the bank is “their money.” Well, actually, it isn’t. At least not according to the law.

In terms of the law, when you deposit money into a bank, you are lending that money to the bank. The money they “owe” you they can legally default on if they have any problems. It’s not your money anymore.

“But the government insures my money! That’s what the FDIC is for!”

Nope. Banks in the USA have approximately $9 trillion in insured deposits. Guess how much the FDIC has? $25 billion. Do the math. That means that the FDIC has only 0.2% needed to cover all the deposits in all American banks. And that’s just the United States; many other countries are far worse off.

As always, trusting big government to protect you is never a good idea. Ask the American Indian if you don’t believe me.

In terms of what you should use banks for, banks should only be used for business checking accounts and any short-term personal checking accounts easily linked to business accounts. That’s it. You should not use a bank for anything else.

Most credit unions and investment firms won’t let you start business checking accounts there. So for your business checking account, you’ll need to use a bank. You can also set up a personal checking account at that bank if that makes it easier to withdraw or manage funds from your business bank account.

However, I recommend that you don’t leave any money in a bank for any reason for longer than about six months. Consider banked money as a very temporary holding bin until you either spend it or transfer it into short-term savings (like to pay taxes or some other near-future event), longer-term savings, or investments.

For savings accounts, don’t use a bank. Use a CD or similar at a credit union (worst), a money market account at an investment firm like Vanguard, Fidelity, Charles Schwab, and so on (much better), or if you consider it more speculative savings, a savings account or CD at a foreign bank outside of your country where you can get much higher interest rates (good but complicated).

The bottom line is that long-term money should never be sitting in a bank. Your money is safer and will multiply faster if you keep it out of a bank. Just use a bank for operating cash and transactions.

17 thoughts on “Using Banks vs. Investment Firms

  1. What specific bank would you trust with the configuration you recommend, and to set it up? – business checking accounts and short-term personal checking accounts linked to business accounts

  2. or if you consider it more speculative savings, a savings account or CD at a foreign bank outside of your country where you can get much higher interest rates (good but complicated).

    How do you decide which institution to chose in other countries? Do you go for the big famous ones that are present in many countries just have the actual account in another country? Do you do your own research to find some smaller / local ones? Do you go for easy stuff where it can be done all online or do you travel there in person to open accounts?

    Is your advice relevant even for smaller amounts of money like several thousand bucks or would you say its only if you have hundreds of thousands otherwise its not worth the bother?

  3. What specific bank would you trust with the configuration you recommend, and to set it up? – business checking accounts and short-term personal checking accounts linked to business accounts

    That’s the beauty of the system – if all you’re going to use a bank for is a business checking account, it almost doesn’t matter. As long as they have a good online banking feature and mobile apps (and just about all of them do), you can pick pretty much any of them. Only when your needs get more complex should you get more discerning.

    How do you decide which institution to chose in other countries? Do you go for the big famous ones that are present in many countries just have the actual account in another country? Do you do your own research to find some smaller / local ones? Do you go for easy stuff where it can be done all online or do you travel there in person to open accounts?

    Those are very complicated questions that I can’t answer in a simple comment. I will write more about that topic as time goes on.

    Is your advice relevant even for smaller amounts of money like several thousand bucks or would you say its only if you have hundreds of thousands otherwise its not worth the bother?

    That depends on your financial position. If “several thousand bucks” is a lot of money to you, then you shouldn’t keep that amount in a bank long-term (unless it’s required for monthly transactions in your biz). If it’s not, then do whatever you want.

  4. By the way Caleb,

    I believe that you’ve mentioned before that at Freedomfest someone stated that “your FICO score doesn’t mean shit.”

    Could you elaborate on why you possibly agree with that sentiment? Or at least find it interesting? Isn’t a FICO score important for getting car loans, managing housing mortgages and saving money on various other expenses?

  5. Could you elaborate on why you possibly agree with that sentiment? Or at least find it interesting?

    A FICO score doesn’t indicate wealth, income, financial success, or even financial stability. It is not indicative of anything truly important. How much fucking money do you make? How much money do you have saved? How much do you continue to put away? How much debt do you have? How much do you pay in taxes? These are the important indicators you need to focus on. Your FICO score doesn’t mean shit.

    What a FICO score does indicate how good you are at borrowing money. That’s it. But you shoudn’t have debt. I don’t. Having a lot of debt just means you’re an idiot (unless all of that debt is backed by high-equity real estate). You having debt serves the elites, not you. You having debt just makes you a slave.

    Isn’t a FICO score important for getting car loans

    You shouldn’t ever have a car loan. Car loans are for idiots. I haven’t had a car loan in over 20 years.

    housing mortgages

    You don’t need a FICO score to get a mortgage. Banks can go off payroll stubs and checking account statements instead. I’ve done this myself (since my TransUnion score is zero).

    and saving money on various other expenses?

    No. It just saves you money interest on DEBT, which you shouldn’t have.

  6. Can you elaborate on why a brokerage company is better than a bank or credit union for storing your money?

  7. Can you elaborate on why a brokerage company is better than a bank or credit union for storing your money?

    1. They are managed less poorly (generally speaking).

    2. They aren’t quite as hard-linked to the government as a bank.

    3. They will (generally) give you much higher levels of customer service.

  8. Another important reason is that they make their money on management fees and they don’t have high levels of retail overhead.

    They don’t print fiat currency and don’t indulge in fractional lending which have made a lot of banks insolvent in everything but name.

    I’m not sure of all investment firms but I’m sure that your funds are ring fenced with Vanguard, so even if the management company fails you still own the funds. Of course anything is possible in the event of a collapse so do your own research when it comes to your finances. It’s your money and you and you alone need to be responsible for knowing this shit.

  9. @Caleb and @Sailormack: those are really good points that I hadn’t considered.  I have about 10% of my net worth in CD’s and savings accounts at smaller credit unions and next to nothing in big commercial banks.  But I will remember to preference the brokerage companies for this if practical in the future.

    I have a feeling that the government would not let the FDIC go under in a financial crisis.  But I would rather not gamble my future solvency on this feeling.

  10. I’m not sure of all investment firms but I’m sure that your funds are ring fenced with Vanguard, so even if the management company fails you still own the funds. Of course anything is possible in the event of a collapse so do your own research when it comes to your finances. It’s your money and you and you alone need to be responsible for knowing this shit.

    In the event of collapse you want to have direct access to your money. Any kind of account is not direct access. Direct access is physical gold you have at home, or some hidden location or stack of cash or cryptocurrency. Also owning real estates or stocks in company written on your name is direct access (with the stocks might still depend a bit).

    Obviously to have most of the money in those vectors is maybe not possible / practical unless you are obscenely rich but at least some partial diversification is important I think. In fact I believe having lots of cash can be good in an event of crash – some things might suddenly become cheap and you could become a new millionaire if you invest in the right things when no one else has cash / is worried about food etc.

  11. Investor

    Excellent points and all worth noting.

    I think the majority of people are naive and are totally unprepared for an economic apocolypse.

    Individual economic survival is a lottery but with some planning you can hopefully get on the right side of the bet.

    I hope the guys on this blog take note.

    Cheers!

  12. Its hard to prepare for economic collapse for the average person. The usual advice like buy lots of gold, agricultural land, etc l is only possible for very rich individuals or large organizations.

    But perhaps a good start is to stock up on long lasting foods, medicine and cosmetic products at least to the point that you dont need to buy these things new every two weeks and have some gold /cryptocurrency. Weapons are another big point but if living somewhere where this is not allowed or you dont want to actually kill people anyway it could be good to get some fake realistic looking weapons because anyway the main idea is that hopefully you dont need to use it but its a deterrent, you can probably get out of many situations just by holding a realistic looking handgun replica.

  13. I have a feeling that the government would not let the FDIC go under in a financial crisis.

    Technically you’re probably right. The would just print up trillions of dollars (again) and bail out the banks (again), causing all kinds of inflation, chaos with interest rates, massive trade disruptions, and so on. If things get that bad, it won’t be good for you if you’re an American who’s vested largely in American dollars.

    In fact I believe having lots of cash can be good in an event of crash – some things might suddenly become cheap and you could become a new millionaire if you invest in the right things when no one else has cash / is worried about food etc.

    Yep! I’ve talked about this several times.

  14. BD – I was a total idiot for a year and a half of my life and got into about $30k in credit card debt, while being employed in the W-2 world and then leaving it to start my own business. Most of my debt came about from poor decisions during my start-up; now I am earning in the mid six figure range luckily, but still feel bolted down by all these debts. I also live in New York, which is expensive as hell, but my clients are all in the high range here…hence the higher income.

    I am curious as to what your thoughts are on not paying credit card bills. I know it would ruin my credit for seven years – but we also know that the economy is going to crash, and hard cash is going to be more important it seems. I have been told that credit card companies pass your debt to collection agencies, who hound you but also would opt for a cheaper cash settlement, at the cost of ruined credit. Do you think this is a good idea in this circumstance, especially considering that such an option would permit me to hold cash in hand that would be useful during the next crash, rather than handing it off to credit card companies right now?

    About the only major purchase I want to potentially make in the future is to buy property with a downpayment when the next economic crash occurs.

    I realize that stupid decisions got me here, but I learned a lot (the hard way) and now have to find my way out….

  15. @OS:  trash your credit for years and years to get out of $30K in debt??

    Totally not worth it.  But let’s say you go ahead and default on your debt.  And lets say you invest really 30K well and double your money.  At the cost of all the hassle of declaring bankruptcy and dealing with bill collectors, you still only have $60K.  In the grand scheme of things, $60K is peanuts.  Just do the right thing and pay your bills.  You will be much happier in the end.

  16. Do you think this is a good idea in this circumstance

    I can’t answer that question without knowing your financial scenario in great detail, but I lean towards no.

    Plus, if you make six figures, paying off $30K shouldn’t take you very long… unless your expenses are really high, and you said you live in New York, so if you can’t pay off $30K because your NY expenses are so high, then you already know what I’m going to say about that…

  17. “As always, trusting big government to protect you is never a good idea. Ask the American Indian if you don’t believe me.”- Classic! Lol

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