What we are learning from the Cyprus Deposit Tax Crisis

Photo: EPA - From Associated Press in London

Wow, are you guys looking at the news today?  Do you see the population of the little island of Cyprus protesting because their government has closed their bank accounts for a few days?  Seriously, the whole country is without access to their bank accounts until Thursday, March 21st!

That's crazy!

The reason this happened is because a large number of people began withdrawing money from their bank accounts.  But more importantly, huge depositors (that's millionaires, billionaires and large corporations, folks) began transferring money out of Cyprus. You know they had to stop that, right?  The little people with now frozen bank accounts are just the residual fall-out in this catastrophe that went boom!

If you want to full explanation of how things got so bad, you should read this NPR article that explains the whole thing. It's called: Why The Crisis In Cyprus May End Up Hurting You Too  It's a fairly short article and an easy read. I recommend you read it because we could be facing the very same thing in the U.S. and other countries very, very soon.

The funny part about this is many of the citizens of the United States and other countries do not believe this could happen to them.  I'm not of the same notion.  In fact, I know that this could easily happen to us for a number of reasons that I'm not going to get into because it would make this post too long.

Of a bigger concern to me, a concern that I want to share with you because it could quite possibly save you too is  . . . you need to diversity your cash holdings.  You heard me.  You should not have all your liquid funds, your cash, your dough, your moola in one basket.   You should take the advice of all those personal finance gurus and diversify.  But instead of diversifying your investments -- you should diversify how you store your money.  Seriously.

I mean look at those people in Cyprus.  For three days they can not get any cash from the ATM or their bank accounts.  Their money is on freeze mode!  Could you survive for three days without money?  And wait, why should you do that it's your money, right? Right? Shouldn't you have full access to your money whenever you want it?

So in light of this, I've decided to change my cash management habits and put my hard-earned money in several places, just in case some kind of financial crisis happens or a disaster happens  -- things can go BOOM! and I can get to my much needed funds.  And you should do this as well!

Let's do this together.  Fight the power!!!

OK, so I'm gonna admit that having a bank account in a "too big to fail" bank is very, very convenient.  The ATMs are handy and plentiful.  The FDIC insurance is reassuring.  The online banking and electronic bill pay is down-right luxury living.  And that's fine to place the money that you are going to send out to pay bills anyway into these large bank accounts, but as for the other money that you store, save and use on a daily basis . . .

Credit Unions
Credit unions are just like banks, only they cater to the owners of the credit union which are a group of people who live, work or have some community affiliation (usually local).  The great part of this story is the owners are you, the depositors, the community that uses the institution.    They are smaller institutions, therefore they handle money conservatively.  Case in point -- you did not hear of failing credit unions during this big financial fiasco of 2008-2009 did you?  That's because there were none.  Cool huh?  Credit Unions  have ATMs, checking and savings accounts and feel like a regular bank.  They even have deposit insurance (not the FDIC but just as reliable). Check out a credit union near you - Credit Union Finder.

Prepaid Credit/Check Card
You can put as much money as you'd like on these cards and they act as ATMs and Credit Cards, most people know them as Pre-Paid cards.  But the cool thing about them is you can access your money from any ATM, they store your cash and you can arrange direct deposit into them, they have the same protection from theft as regular ATMs and Credit Cards, but they are not a bank.  Nice!  CardHub has an excellent search for the best Pre-Paid Cards, check it out.

Paypal
Just think, if some of those people in Cyprus had a PayPal Account they could have quickly transferred bank account funds to their PayPal account via web/online transfer, and then would have been able to access their funds using the PayPal ATM or would have been able to send people money through e-mail.  Nice huh?  The only problem with PayPal is that they reserve the right to freeze accounts and it has been reported by a few people that they've frozen accounts for up to 90 days.  I don't personally know anyone that this has happened to but enough people have complained about it so be warned.

Mutual Fund Account
You can open a mutual fund account through such services as Scottsdale or Fidelity. It does not have the same protections (deposit insurance) as a bank account so beware.

Safe Deposit Box
A little box at the bank that you get an exclusive key to.  The bank has no idea what's in the box.  Only you do.  You can put as much cash (and other valuables) in it as you wish.  It's not considered a bank deposit, so something like the "Cyprus Deposit Tax" would not apply.  The only drawback, you have to rent the box for a year or so and it can can cost you $40+ per year.  Some banks give you a free deposit box with a checking account, so ask for a freebie if you have an account with your bank.

Cash on Hand/Cast Iron-Fireproof Safe (properly bolted in a secret place in your house)
I love the old Batman Television series (with Adam West) because the rich people always had a safe in their house with jewels and wades of cash and stuff in it.  Why shouldn't I live out my childhood fantasies and do the very same thing?  After all, I live in California (earthquake country) where we are told to keep at least 3 days of cash-on-hand because the experts estimate that it would take that long for systems to be up should disaster strike.  Good advice.  I think the people of Cyprus needed that advice as well.

Well, there you go guys.  From now on, I intend to diversify.  Every month I'm going to put a percentage of my funds in a couple of these options so I can sleep easier, just in case.   You should seriously think about doing the same.  And the people of Cyprus: I'm sorry the world's population of the "average guy" had to learn this the hard way, through your suffering.




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