Where do the rich keep their cash

[raybarrow]

Hi Folks,
Sunday morning, coffee, random thoughts.
I recently inherited a good sum of money and am currently spreading it around various accounts to keep balances around the £85K financial protection limit whilst I look at investing it. I know it's a nice problem to have but the thought occurred what do the rich/super rich do? £85K per bank wouldn't touch the surface of some people's fortunes. I know they would have all sorts of investments etc etc. Do 'private' banks not have the same limits or is there insurance available or what?
Ray

[scrumpyjack]

I think they take the view that the risk of the likes of Goldman Sachs and JP Morgan defaulting on their depositors is so infinitesimal it can be ignored.

[Allitnil]

Not rich enough to answer your question! But in case it helps you, the FSCS limit for protection rises to £1m following certain "life events" which includes inheritances. The £1m amount applies for up to 6 months. So if you expect to make the investment decisions within 6 months there's no need to go to a lot of hassle opening multiple accounts.

See https://www.fscs.org.uk/making-a-claim/ ... -balances/

[Mike4]

I keep mine in a tin under the driver's seat in my van, handy for parking meters...

But more seriously, I think the government's view is why should anyone with more than £85k lying around in cash expect to be protected? The protection is there AIUI to prevent the 'little man' being utterly ruined by a bank defaulting. The bigger boys can look after themselves.

[Lootman]

One idea is to park large amounts of cash in short-dated gilts and other AAA-rated money market instruments. Your counterparty is then the UK government rather than an institution.

Not that I worry about it that much, and it is a faff having a large number of accounts to keep track of, report for tax purposes, and so on. For much the same reason I don't play the game of jumping around between savings accounts to gain slightly more interest for a while.

[stevensfo]

Hi Folks,
Sunday morning, coffee, random thoughts.
I recently inherited a good sum of money and am currently spreading it around various accounts to keep balances around the £85K financial protection limit whilst I look at investing it. I know it's a nice problem to have but the thought occurred what do the rich/super rich do? £85K per bank wouldn't touch the surface of some people's fortunes. I know they would have all sorts of investments etc etc. Do 'private' banks not have the same limits or is there insurance available or what?
Ray

Yes, a very nice problem to have. But I guess that with house prices so high, it's a problem that is becoming more common as us baby boomers and our parents shake off our mortal coils.

I'm nowhere near the rich/super rich category, but I imagine that this is something they grow up with, and no doubt have good accountants, rich uncles etc giving advice. Maybe plenty of agricultural land, properties all over the place, art, collectibles, expensive hobbies etc. I reckon that you have the right approach; protect the cash while deciding where to stick it. Being a LTBH person, I'd be inclined to get it invested asap.

If I were already 'comfortable', I'd be tempted to put it in property, preferably in a place like Malta, Dubai or any place where the lack of local or council taxes make owning a property easier.

I don't see any problems with the 85K guarantees, as long as you use 'real' banks.

Steve

[mc2fool]

I recently inherited a good sum of money and am currently spreading it around various accounts to keep balances around the £85K financial protection limit whilst I look at investing it.

Well, as already noted, FSCS cover is £1million for 6 months for inheritances, etc, but that aside, if, as you're only looking for a temporary home, security is more important than interest rates, then the simplest solution is just to put it all in NS&I, which is guaranteed for any amount.

"NS&I is a little different from your normal bank or building society. Yes, we're like a bank in that we’re a place to put your savings, but we’re also part of the government. And, as the government’s savings bank, we have the backing of HM Treasury, who guarantee 100% of everything you invest in NS&I. Not just £85,000 - every penny. " https://www.nsandi.com/get-to-know-us/security/protect-your-money

Now, as I say, their interest rates aren't exactly great, with the best offerings at the moment being Premium Bonds at 1%ish (max £50K) and the Direct Saver at 0.15% (max £2M).

Premium Bonds are, of course, a lottery, however experience shows that if you have the max of £50K there you will most likely get an average annual return of 0.8-1.0%, mostly in £25 prizes. Oh, and it's tax free. YMMV.

https://www.nsandi.com/products

[AF62]

But more seriously, I think the government's view is why should anyone with more than £85k lying around in cash expect to be protected? The protection is there AIUI to prevent the 'little man' being utterly ruined by a bank defaulting. The bigger boys can look after themselves.

But history demonstrates that isn’t the government view when ‘the brown stuff hits the big whirly thing’.

Cast your memory back to when Northern Rock got itself in trouble in 2007. At that time the first £2k was fully protected and then 90% up to £33k, but that was irrelevant to those with a few hundred saved (and protected) - they were queuing up outside to get their money like everyone else.

The queues, and the risk of contagion to other banks, only disappeared when the government promised all retail savers that their money was safe no matter how much they had saved.

Then you had the follow on with the Icelandic banks which demonstrated that ‘protection’ is pointless when the (Icelandic) government turned round to non-Icelandic savers, who were protected under their scheme but were told to ‘get lost’.

Again it was the UK government who stepped in and reimbursed UK retail savers (no matter how much was saved) who had lost out when the Icelandic government failed to honour the promised protection, and took the issue of repayment up with Iceland themselves.

What that tells me is that the FSCS limit is irrelevant.

If the UK government can do something to protect retail savers it will, as the alternative is the collapse of the banking system. And if it doesn’t then it is probably because it cannot, and even if the FSCS does pay out in those circumstances then the country has likely descended into anarchy and a shotgun and stock of canned beans would be more valuable than some bank notes.

[Mike4]

But more seriously, I think the government's view is why should anyone with more than £85k lying around in cash expect to be protected? The protection is there AIUI to prevent the 'little man' being utterly ruined by a bank defaulting. The bigger boys can look after themselves.

But history demonstrates that isn’t the government view when ‘the brown stuff hits the big whirly thing’.

Cast your memory back to when Northern Rock got itself in trouble in 2007. At that time the first £2k was fully protected and then 90% up to £33k, but that was irrelevant to those with a few hundred saved (and protected) - they were queuing up outside to get their money like everyone else.

The queues, and the risk of contagion to other banks, only disappeared when the government promised all retail savers that their money was safe no matter how much they had saved.

Then you had the follow on with the Icelandic banks which demonstrated that ‘protection’ is pointless when the (Icelandic) government turned round to non-Icelandic savers, who were protected under their scheme but were told to ‘get lost’.

Again it was the UK government who stepped in and reimbursed UK retail savers (no matter how much was saved) who had lost out when the Icelandic government failed to honour the promised protection, and took the issue of repayment up with Iceland themselves.

What that tells me is that the FSCS limit is irrelevant.

If the UK government can do something to protect retail savers it will, as the alternative is the collapse of the banking system. And if it doesn’t then it is probably because it cannot, and even if the FSCS does pay out in those circumstances then the country has likely descended into anarchy and a shotgun and stock of canned beans would be more valuable than some bank notes.

I think you're right actually, but the government can't possibly say this or massively raise the limit without the "moral hazard" argument coming into play. If the govt formally backed all bank deposits, what incentive would the banks have to take good care of them?

[dealtn]

If the govt formally backed all bank deposits, what incentive would the banks have to take good care of them?

Seriously?

You think bank's behaviour is dictated by the presence, or absence, of a guarantee to retail depositors? What different outcomes do you envisage for bank owners/directors when there is a guarantee, or not?

I can't see any meaningful incentive/disincentive by such, and certainly was never a consideration when I was employed at a Bank.

[AF62]

I think you're right actually, but the government can't possibly say this or massively raise the limit without the "moral hazard" argument coming into play. If the govt formally backed all bank deposits, what incentive would the banks have to take good care of them?

I think the banks have been bailed out enough times in the past to know that they can do as they please.

[Aminatidi]

I had pretty much my life savings in Icesave back in the day.

Trust me I was pretty damned glad for the Government intervention.

[mc2fool]

I think you're right actually, but the government can't possibly say this or massively raise the limit without the "moral hazard" argument coming into play. If the govt formally backed all bank deposits, what incentive would the banks have to take good care of them?

Make requiring a bail out a criminal offence by the directors and top level executive management, minimum 10 years.

If there's another 2007/8 type event I suspect there'll be a lot more use of bail-ins, rather than bail-outs.
https://www.investopedia.com/articles/markets-economy/090716/why-bank-bailins-will-be-new-bailouts.asp

[pje16]

I had pretty much my life savings in Icesave back in the day.

Trust me I was pretty damned glad for the Government intervention.

Not my life savings but
I shared your worry at the time... and similar great relief
My local Council had their reserves there too

[AF62]

I had pretty much my life savings in Icesave back in the day.

Trust me I was pretty damned glad for the Government intervention.

I had some with them, not a lot but enough to miss, and I was damn glad as well.

What really impressed was that it was in an ISA and they made arrangements for the compensation they were paying to be paid into a new UK ISA.

[stevensfo]

I had pretty much my life savings in Icesave back in the day.

Trust me I was pretty damned glad for the Government intervention.

I had some with them, not a lot but enough to miss, and I was damn glad as well.

What really impressed was that it was in an ISA and they made arrangements for the compensation they were paying to be paid into a new UK ISA.

Although I didn't have anything in the Icelandic banks, I can imagine the worry and panic. We'd all like to think that the Financial World has cleaned up its act since then. But just do an internet search for Barclays/HSBC/Lloyds/ Standard Chartered + money laundering+ corruption + terrorism + fines+ court.....etc, and you soon see what's going on. If they weren't so busy paying millions in fines, we'd all have deposit accounts paying decent interest!

But people have short memories and don't like to think too hard about real life. The recent Pandora files scandal showed, as did the Panama scandal, HSBC scandal etc how the authorities know exactly what's going on, who is hiding money and how they do it. But much easier to pretend that the banks are squeaky clean by making the middle classes jump through a myriad of hoops every time they want to buy a bleedin' gobstopper!


Steve

[dealtn]

Make requiring a bail out a criminal offence by the directors and top level executive management, minimum 10 years.

And when banks only offer 50% mortgages, and people take much longer to save deposits for homes?

When banks won't offer unsecured lending to business?

When it proves even more difficult for small businesses to get start-up funding?

I'd be careful what you wish for if you are serious about threatening with Bank Directors with 10 years prison sentences that don't apply to other businesses. Think about the calibre of person who would accept such risks compared to alternative directorships.

[dealtn]

I had pretty much my life savings in Icesave back in the day.

Trust me I was pretty damned glad for the Government intervention.

Not my life savings but
I shared your worry at the time... and similar great relief
My local Council had their reserves there too

Interesting many appear to think it fine that individuals are ok to be bailed out, and moral hazard issues are ok, but "reckless" banks (and their Directors) are culpable and should face the consequences of "their" risky actions.

Aren't those that "risked" their savings in (unknown) overseas banks, lured by the attractive interest rates, without checking the institutions and the (then) compensation schemes guilty of acting riskily then? People, and institutions including Local Authorities were very lucky to benefit to the extent they did by (extended) government measures to bail them out.

[mc2fool]

I'd be careful what you wish for if you are serious about threatening with Bank Directors with 10 years prison sentences that don't apply to other businesses.

Other businesses didn't need the government to stump up £137 billion.

[dealtn]

I'd be careful what you wish for if you are serious about threatening with Bank Directors with 10 years prison sentences that don't apply to other businesses.

Other businesses didn't need the government to stump up £137 billion.

You're talking about the future though.

So go ahead let's have bank Directors personally liable to prison sentences during global recessions and financial crises. What type of person do you think will volunteer to be a Director of a Bank, compared to a Director in an alternative industry? What kind of decisions will they be making in good times (and bad)?

Do you think you would have had global successful business bringing in the huge percentage of tax revenues that financed much of the 1980s and 1990s expansion in Government spending?

I would, as I said, be careful what you wish for?