Diversifying to protect myself beyond the 10mJPY limit of deposit insurance

[halleluyah]

Note; I’m not looking for advice, I am just wondering what it is that people do. Or do they really just keep swathes of cash in their current account.

With the world where it is, I appreciate there will never be an ultimate solution to this - and I must lean on the trust I have placed in mega banks to do so. But I want to have the discussion anyway.

What are the viable options to ensure cash in Japan will not disappear if the unthinkable happens to the bank that is providing me?

I already have a NISA, Crypto, Mortgage and an ETF (edit: and iDeco) as outgoings on my monthly salary. But what to do with the rest of it? In my home country keeping lumps of cash is not advisable as your account is only protected so much - I understand the same is true in Japan.

What do C-Suite people do with their 30m annual? I’m a mid-management level so I can’t imagine I am the first to have this thought!

 

[phillev]

@halleluyah People who have more than 10 million yen in cash may like to think of opening a few bank accounts and splitting cash between them so as to not go over the 10 million insurance limit.

Those who think that’s too annoying, or those with significantly more than a couple tens of millions may like to look into a 当座預金 account. In exchange for paying no interest, there is no limit on the amount it is insured up to in the case of bankruptcy of the bank.

Edit: and if your question is what to do with your money, I would say pick a percentage that you’re comfortable with having in cash vs investments and stick with it. For example, 20% in cash and 80% in mutual funds. Some people would prefer real estate. Some people would prefer investing in their side business.

 

[padraig2003]

@phillev

to look into a 当座預金 account.

How accessible is that? Does it come with extra requirements or fees?

It's not a 当座預金 account but many people actually already own an account that insures almost all your balance but just don't know it:

Japan Post accounts don't get interest above 13 million. Everything above is insured and everything below 10 million also is. That means you are insured safe for the 3 million sandwiched in there.

Perhaps, if you were clever enough and able to reject the change a few years back to the increase to 13 threshold instead of the old 10, you can cover everything.

I believe you might not be able to change the limit down anymore but would have to open a new account with them.

Looks like this can be easily adjusted: https://tsuker.net/2018/05/jp-bank-auto-swing.html

 

[phillev]

@padraig2003 Well, 当座預金 accounts are mainly used by corporations or sole proprietors, because they have a larger need for cash than true individuals (like they need to have enough cash to pay their employees salaries every month, which could be tens of millions of yen per month depending on the scale of your business). To be honest, individuals don’t generally have much of a need to have such an account, as they don’t have such large cash requirements and it’s generally more efficient to invest excess cash and keep a reasonable sized emergency fund only.

As for the post office account, technically the amount above 13 million yen is kept in a 振替口座.

 

[padraig2003]

@phillev

As for the post office account, technically the second 13 million yen is kept in term deposits rather than true cash like the first 13 million.

Is it? Termed deposits would usually come with a separately tracked account and, well, a fixed term making cash inaccessible until the term is over, which isn't the case here. It's supposedly a 振替口座 where it lands (which is not really a termed deposit). And what does this technicality mean in practice?

For me everything is still tracked on a single account balance (I needed to hold on to a bit of cash temporarily) and I don't see any indication of the funds being less readily accessible.

My understanding is that it is a technicality when they say "超えた金額を振替口座（振替貯金）に、自動的に移動します", and there's neither a second account nor impact on liquidity, just that they have to mark that portion differently and say they bucket it as a 振替預金 account.

The funds above will be marked as 振替 or 振替口座分 on the statements and changes are immediately reflected, e.g. take out a million, the 振替口座分 will also reduce by a million. If this part of my balance isn't acting like liquid cash in the bank, I wouldn't expect the sub 13 million portion to remain unaffected by a debit, i.e. it would restrict the readily available amount for a time until replenished, right?

 

[phillev]

@padraig2003 Sorry, yes you’re right from a practical point of view. This is a technicality. See here. Edited my first comment for clarity.

 

[eterna]

@halleluyah C-suit are supposedly smart enough not to keep too much cash at hand, but frankly financial management varies greatly per person.

The risk of loosing the amount above 10M seems lower to me than the certainty of missing money. Every year your 10M loose a few % to inflation, and even more % from not growing beyond inflation. At 7% (growth + inflation), after 10 years, you should have 20M, but you're going to sit with 10. That should feel a more painful certainty that the probability of a bank collapse.

Remember the emergency fund can be invested, the cash part is only the part of it you do not want to potentially loose money on. For ex you may want to have 3 M emergency fund in case you need to relocate a whole family quickly oversea, but if that happen you may be fine with taking from your taxable account since it is such a unique an large event, so you can keep your cash fund to the 1M that would cover more likely events.

If you are not planning big purchase or down-payment, just invest it.

 

[jandolphrohnson]

@halleluyah I wouldn't want to be keeping that much in cash in the first place. So while I do have several bank accounts, more by accident than design, most of my remaining cash goes into the ETF-like investments (in boring taxable form).

 

[toni123]

@halleluyah Past a certain point, it becomes impossible to avoid having more than 10M in cash even with multiple banks. It's really not a terrible problem to have.

 

[bigoink]

@halleluyah I mean, if one of the megabanks went down it would bring down the entire Japanese financial system, so worrying about say MUFG going under seems a bit unlikely.

A run on the yen is more likely so I would definitely be looking at diversifying the cash into different currencies, with a decent chunk held in your home country in the event of a sudden forced departure.

 

[manishk012]

@bigoink Foreign currency accounts are not insured at all, if that’s what OP is concerned about.

 

[bigoink]

@manishk012 Different kinds of risk though. In our lifetimes I think there is a decent chance of high Japanese government debt eventually leading to a borrowing crisis and a run on the yen (which would be massively accelerated as millions of Japanese families raced to move their cash deposits into dollars).

 

[albinoguitman]

@halleluyah

what it is that people do

After the emergency fund, conventional advice is to invest all the extra take-home money instead of keeping millions and millions laying around. Heck, even in purely financial terms even paying off the mortgage early (if you don't have penalty) for +0.5~2% gain is probably better than just keeping the money in the bank and losing -1~5% to inflation.

 

[rogueebear]

@halleluyah IMO you only really hold cash for emergency fund and a bit extra for living/holiday m expenses.

So if your emergency fund is less than ¥10 million, then If you’ve already maxed out your NISA, you could consider investing that in your taxable accounts.

Also are you doing iDeCo/DC?

 

[halleluyah]

@rogueebear Forgot to mention - will add as an edit. Yes I do have iDeCo. I’m maxed out on all the tax deductible options.

 

[rogueebear]

@halleluyah

I’m maxed out on all the tax deductible options.

Private medical, cancer, and life insurance too?

You can get an additional (although small about a maximum of ¥76,500 per year) tax deductible for them. But if you’re a high income earner the tax deductible could still be very noticeable. The premiums for a high earner would not be much of a dent either.

With the benefit then that the insurance provides you cover in specific emergencies (meaning you can then reduce your emergency fund a bit more too)

 

[halleluyah]

@rogueebear Thanks - I’ll look into this, I remember discussing this a few years back but heard horror stories of insurance sales processes from a local friend.

 

[revstockton]

@halleluyah Investment insurance vehicles are rarely a great investment. Health insurance (particularly for cancer) can bring peace of mind, though most hospital stays are unlikely to cost significant sums, especially considering the monthly limit for health care

 

[rogueebear]

@revstockton

Investment insurance vehicles are rarely a great investment.

Just for clarification I wasn’t talking about the investment types of insurance.

 

[revstockton]

@rogueebear I figured as much!