Any bank in the world can suffer a bank run. A bank run is when the bank run out of money for the depositors to withdraw.

Bank make money by taking the depositors money and lend it to someone else. Generally, the ratio is about 10:9; they take $10 from you, and borrow out $9. They standby $1 in their account for you to withdraw. Hence if you look at this carefully, the bank by nature is highly leveraged and therefore any bank, if suffer a serious trust issue, can result in a bank run when a huge majority of the depositors decide to withdraw all their money and put elsewhere.

That’s also the reason why cryptocurrency has been touted as the “new currency”. Instead of parking in a centralised banking system, you put it in a decentralised system. Well, the concept is too new, and as much as there’s a lot of fanfare on it, I still think it’s a total scam.

That being said, my personal take this, you want to leave almost 99% of your cash balance in elsewhere except the bank.

The bank is not a place to store your cash, due to 2 main reasons.

1. They will never want to give you a higher interest rate. If you are shareholder of the bank, will you do that? Go think it yourself

2. It’s highly leverage business, and it can run anytime.

Therefore, one should use the bank for TRANSACTIONAL purposes. You apply your credit card with them, in fact, owe them money from the credit card you charged, and you make sure you pay the bill promptly though. That’s the ideal scenario.

Park your cash in short term treasury bonds. I’d say that’s the safest asset class in comparison to money in the bank. In short term treasury bonds, you have high liquidity and better interest rate than the bank. I know you can’t get that same level of liquid as money in the bank as you can instantly withdraw it, but come and think about it, if you really need money urgently to buy things, charge it to your card. You can pay the bills 45 days later. At the same time, in anticipation of the upcoming bills, redeem your treasury bills and pay it off. It may sound tedious, but that’s because many people have never tried this before. They have been using the old method for too long, until they avoid trying new things which has all along existed for them.

Alternatively, try money market funds as well. It works the same way, and has even higher liquidity than treasury bills.

My favourite way? Yup, it’s gotta be life insurance policy instead. Many people didn’t realise how valuable their policies is because they didn’t know there’s this loan facility feature in the plan. Your life insurance policies are guaranteed to increase in value over time due to the nature of the business; policyholder pooled their premiums into participating funds (which is owned by them), managed by the insurer (management fee of around 1-2%), and a profit sharing model of 90:10 with 90 in policy owners favour. If you truly understand the above, you will want to park money inside life insurance policies. Yes, there’s a initial high cost, but after 5-10 years, the cost is covered, and this policy will generate guaranteed returns to you year after year.

The moment there’s cash value in the policy, a loan facility is created for you in that policy. You may borrow money from there to draw the money out for your expenditures. Now, most of the time, you don’t need to draw out as you can look forward to your next month paycheck to settle the bills. However, if you lose a job, and in the interim, suffer a liquidity crunch, this facility will come in handy.

Why not surrender the policy to encash it? Why would you want to lose the future compounding interest that you are going to earn then? Never do that unless there’s a priority shift. Otherwise, borrow money from the insurer, and pay it back when your liquidity improves.

In conclusion, you don’t have to agree with me on the life insurance part, but I hope you do agree that bank is a risky business and let’s park our money away from them.