(Bloomberg) -- The fallout from the implosion of Silicon Valley Bank is raising an uncomfortable question for regular investors: Is my money safe?
For people who lived through the 2008 financial crisis, bank failures and government bailouts evoke intense fear. And while personal finance experts caution against panicking, it’s hard to sit by and do nothing as a fast-moving news cycle fuels anxiety and confusion for many Americans.
Staying informed is one of the best ways to prepare, advisers say. While there may not be specific moves to make right now, that could change as the crisis unfolds.
Should I move my money?
The good news is that the Federal Deposit Insurance Corp. secures up to $250,000 per depositor in qualified accounts at insured banks. So as long as your bank is FDIC insured and you’re holding less than that amount, your money is safe. Plus, the FDIC has said that it will resolve the SVB crisis in a way that “fully protects all depositors,” although the exact details and timeline are unclear.
Still, Mike Bailey, director of research at FBB Capital Partners, recommends double checking the terms of your bank to be extra cautious.
If you do have more than $250,000 in one bank, you could divide that up among multiple banks, said Peter Palion, financial advisor at Master Plan Advisory.
“But in reality the number of accounts that need FDIC insurance going beyond the limit is a fraction of 1%,” he said. “For average people, the FDIC limit is not a concern. It’s that simple.”
Is a recession more likely?
Maybe. Even before the SVB collapse, many market watchers were predicting a recession in the latter half of the year. Now, Matt Miskin, co-chief investment strategist at John Hancock Investment Management, says an economic downturn is more likely.
“After the Fed raises interest rates aggressively, recessions usually follow,” he said. “The Fed raises rates until something breaks, and over the past week, we’ve found our first candidate for that.”
Nicholas Bunio, a financial planner at Retirement Wealth Advisors, agrees that this episode could tip the US into a mild recession, but sees an upside.
“Rates could fall, making bonds more valuable,” he said. “This could, in turn, lead to lower inflation, which could make stocks increase if the Fed stops raising rates.”
Will the Fed pivot on rate hikes?
At least in the short term, some analysts are predicting the Federal Reserve will pause or slow its rate hikes. Goldman Sachs Group Inc. economists say they no longer expect any increase at next week’s meeting, while JPMorgan analysts predict a 25-basis-point hike. That all comes just a week after Fed Chair Jerome Powell signaled that a 50-basis-point hike was a possibility.
“On balance, all of this seems likely to push the Fed more in the direction of slowing further interest rate hikes, if not stopping altogether,” said Kevin Brady, a financial adviser with New York City-based Wealthspire Advisors.
The latest consumer price report comes out Tuesday, but Fed officials — who have been closely monitoring price increases for signs that rate hikes have cooled inflation — may be more concerned about stemming the banking fallout and boosting consumer confidence.
Miskin expects the Fed to hold steady for a couple more meetings, and may even cut rates in a quarter or two. That would potentially be good news for everyday Americans, as the costs for mortgage and auto loans would drop.
Are Treasury investments okay?
Part of SVB’s downfall stemmed from bets on long-dated Treasury bonds. The bank plowed tens of billions into these securities while interest rates were at record lows. But as the Federal Reserve rapidly increased interest rates to curb inflation, those holdings lost value — creating big problems when investors tried to withdraw funds and the bank was forced to sell its stakes at a loss.
That shouldn’t be a problem for average Americans putting money into Treasuries, which became increasingly popular this year as yields rose. Although yields dropped in wake of the SVB news, government debt is still a good bet, according to Miskin. The 10-year is currently at 3.5% and the 30-year is around 3.6%.
“At the end of the day, Treasury bonds will be the most reliable asset class on the planet,” he said.
Craig Toberman, founder of Toberman Wealth in St. Louis, also sees upside for Treasuries due to their safety.
“Shorter-term US Treasury investments stand to benefit from the creditworthiness of the US government compared to the banking sector, while longer-dated Treasuries would benefit even more from an interest rate risk standpoint if the Fed were forced to adopt a more accommodative interest rate policy in response to the SVB fallout,” he said.
Will mortgage rates fall?
Bunio at Retirement Wealth Advisors expects mortgage rates to drop if the Federal Reserve pauses interest rate hikes or even cuts them. That would be good news for potential buyers currently struggling to afford homes as the average rate hits nearly 6.8%.
Especially for first-time buyers, such relief would be welcomed, as borrowing costs and high prices have kept purchases out of reach this year.
Noah Damsky, a financial planner at Marina Wealth Advisors in Los Angeles, noted that a fall in mortgage rates could provide a window for buyers who can move quickly.
“I would expect this to provide near-term support to real estate and transaction volume as opportunistic buyers on the sidelines look to take advantage of a lull in interest rates,” he said.