When is a bank not a bank? When it’s a fintech startup pretending to be a bank. For example let’s hear it for Revolut, strapline “get more for your money”.
I like a lot of their offering. You can hold cash in all sorts of different currencies. Most of the time that’s only useful to globetrotters and people buying goods over international borders, and even that can be handled by a decent credit card in many cases.
Way back when, sometime last year, I had the fond idea of saving cash in a bunch of currencies. I don’t ask much of cash, I don’t even expect to come back in a year and find it worth as much as it was before. However: Brexit. I don’t believe in it, and I don’t think it’s going to be good for me.
Revolut seems to match the requirement of being able to diversify that cash holding across currencies, with very low transaction costs.
Retirees need a bigger emergency fund that their employed selves
Anyone living off investment income but without an income stream against which you can borrow money has to hold a fair amount of cash, typically one to three years’ spending, to avoid becoming a forced seller into a down market.
For people with investment income only, a market crash is an emergency writ large, because realising income from bombed out stocks hammers your capital. You need to sell of a larger part of your capital to get the same income, and a cash buffer puts that off. Unlike emergencies when you’re working, the emergency lasts a while, and there’s nothing you can do to swerve it. A bear market can last a couple of years.
Unlike your normal emergency fund of three to six months, that’s more exposed to losses simply by being larger.
Emergency fund counterfactual – if you’re working, you don’t need a year-long cash buffer
I had come across people who didn’t subscribe to the working life emergency fund of three to six months expenses approach, early on. I read Early Retirement Extreme who was characteristically straight between the eyes on the subject.
I don’t have a disaster fund or an emergency fund. For emergencies, I use a credit card.
If I use a credit card, I will have a 20 day grace period during which I do not pay interest. This gives me sufficient time to move money from my savings account or my broker account into the checking account from where I can pay off the credit card. This way I am not losing money from money gathering dust in a checking account.
Hmm. The first this to say here is that ERE was young and employed, so perhaps more resilient. We tend to get more fiscally conservative as we get older, which is the way of the world – the future income stream from work is less because there are fewer years of income. But I recently read a similar iconoclastic attitude at EarlyRetirementNow, who is much further down the line than ERE was. He takes the same line. So does MedFi. Let’s take a look at ERN’s answer to an emergency
- Credit card float (=interest free loan from the credit card company between the transaction and the credit card payment due date)
- Papa ERN’s paychecks
- The $100,000 HELOC (home equity line of credit) on our condo
- Finally, a large sum in several brokerage accounts, more than half our liquid asset net worth
The Ermine is short items 2 and 3 – although there’s an argument that my pension is some variant of 2. A HELOC is probably what I understand as an offset mortgage. ERM is/was a banker, and is much more comfortable with leverage than I am. I don’t ever want another mortgage in my life – I spent 20 years trying to ground the last one. I do accept that’s an opportunity cost, Monevator tells you why. Some things are just a gut feeling, in the same way that so many people violate the personal-finance principle “never take financial responsibility for something that eats” for lifestyle reasons. Britons tend to regard property=money tree, but I do not regard property as a finacial store of value. I value it for the usufruct. This is because I have had the experience of the capital value of a property falling by a third, and about a half in real terms. Bricks and mortar is not a store of value in my book.
It is possible that living for several years with no capacity to borrow money has skewed my perspective. All lenders want to see an income, paradoxically the financially independent are zeros in the eyes of lenders, because they are atypical. Your average wage-slave wants to borrow money because they want to spend more than they earn, and lenders are used to that. Sometimes that is reasonable – few people save up for a house to buy it cash, because it is easier to live in it and service the debt than to pay rent on top of saving for 20 years to avoid paying the mortgage interest. OTOH if it is for weddings, holidays, cars or other wasting assets then it’s barmy. But lenders gonna lend, and unlike bank managers of yore they want to do it at scale, so they don’t really put any effort into analysing edge cases.
If you’re FI and not working, you need an emergency fund. You are your banker of last resort
We want to be financially independent, and for many of us that’s independent of The Man. But there is another side to financial independence. You look damned odd to the system, and in practice that means the non-working financially independent are independent of finance too. They are pariahs. You’re not going to be borrowing money from anybody unless you can show income. In practice that means your non-working self needs a larger emergency fund than your working self.
Holding a large emergency fund in great British Pounds runs the risk of these becoming a lot less Great but more British due to asinine incompetence. I’m sure there may be a way to make a success of Brexit, but it’s not the track being taken IMO.
Revolut looks good, and you could hold several currencies in it. But they aren’t a bank (at the time of writing) – and you have to watch it with fintech, because a lot of fintech are fly-by-nights without FSCS protection. Even where they are banks, fintechs seems hellaciously trigger-happy on the money-laundering regulations. That’ll be Revolut, Monzo, Pockit.
That’s the trouble with startups. Try to avoid being their creditors 😉 If you have money in a bank, you are their creditor. Let’s take a closer look at Revolut
It used to be simple in the UK. If it took retail cash deposits, it was a bank, and you had some protection against it going bust. Fishy fintech seems to be making that a very different proposition. You’re lending money to a startup. That’s not necessarily a bad thing, but it’s not ‘cash deposit with FSCS protection up to £85k’.
I was saved from Revolut more by luck than judgement – they failed three times to SMS me a link for their app, and I figured I didn’t want to deal with such incompetents. If you go to their blog post on how we are different from a bank, and try and follow the link in the deathless quote
Though we are not the same as a traditional bank, your money is protected.
then call me a wuss, but I would say that’s a no, your money isn’t protected – the general feeling of a lack of competence persists. Apparently Revolut got its EU banking licence from Lithuania. There’s nothing wrong in that per se, and under passporting rules that’s good for operating in other EU countries, but, er, wait – we aren’t in the EU any more so that’s no good to us. And there’s more fishy fintech funniness in there.
I went with Starling instead for mobile money, from which I have had no trouble. However, though you can hold money in Euros with Starling, you can’t hold money in other currencies. Starling is a bank1, and you get your 85k FSCS protection.
I hold the cash sort of float in cash and gold ETFs now. There is an argument that the gold ETFs aren’t protected in the coming war of all against all, but sometimes you gotta know when to fold ’em. I’d rather have this lot
Each Gold ETC is a certificate which is secured by gold bullion held in J.P. Morgan Chase Bank’s London vaults. The issuer of the certificates, Invesco Physical Markets PLC (Invesco PMP), is an Irish-domiciled company administered by J.P. Morgan Administration Services (Ireland) Limited.
as a counterparty than a press on the Bank of Lithuania via the EU (as a Brit non EU member), though it’s probably still an unequal fight. If you really believe in gold, you have to be able to pick it up and run with it. And then in the ensuing twisted wreckage, be able to assure its purity to your counterparty and not get robbed…
Revolut doesn’t lack ambition – it has aspirations to widening its services to include retail stock trading via the platform Drivewealth. Let’s take a butcher’s as to what and how these investors are buying.
Something gives me a late 1999 feeling about all this. I have sympathy with their sentiment, buy what’s beaten up. I want to buy gold or VWRL2, monthly, to reduce my exposure to the Great British Pound. I take a look at how they’ve been doing
and buy the lower – that’s VWRL at the mo. But doing that with Hertz is a little bit too heady for me. I figure in three years time we will be looking back at the twisted wreckage that used to be known as the stock market and ask ourselves the GFC question ‘why did nobody foresee this‘.
FSCS, Treasury, or bust when it comes to cash, in my view
I’m not going to be trusting any of that Euro passporting malarkey, because by the time our bodacious Brexit buccaneers have finished being brutally boorish to anything prefixed with Euro I’d be surprised if they let Brits out the other end of the Channel Tunnel, never mind help us out in another Icesave scenario.
Brexiters are willing to die in a ditch by proxy for that -see we don’t need your steenking PPE and we don’t need your steenking vaccine, because we curse your steenking Europeanness and the horse it rode in on. Let’s take a rain check on the competence of these dudes in dealing with the pandemic, which is a simpler problem than making Brexit work right IMO.
Euro passporting isn’t going to help me. Sovereignty means you get to sort your own shit out on your own. I have accounts with three UK clearing banks and Starling, and I also save £ cash with NS&I Direct. When it comes to cash, simple is what I want. FSCS, enough different institutions, and no fishy fintechs. I may well get hit with money laundering regs at some time, but probably not on all four accounts.
I don’t do P2P other than about £1k sculling about in Zopa from ages ago, no Ratesetter. I’m not going to open an account with Robinhood, I only hold money in dodgy shysters like IG index while I am using them, so I am not exposed to them. Cash is meant to be boring, and it’s meant to be safe. In the Bernie Madoff sense of the term, rather than long-term store of value usage of the term. If you think of cash even with FSCS protection or NS&I as a safe deposit box, then remember that the termites are after the value…
Governments are going to inflate their debts away like those termites, cash is not a store of value, it is a medium of interchange. Storing value is what equities, bonds and gold are for 😉 Even for cash, however, diversify holdings.
Because this can happen. I’d say a smaller pool of sovereignty will make it more likely to happen, although finance is one of the things the UK does quite well. Spread around, you are also not quite such a tall poppy when it comes to Cyprus-like bail-ins too.
Fintech is fine if you want it on your mobile phone, or you were a magpie in a previous life so having brightly coloured bank card is really important to you. Fintech is for features, on amounts you can afford to lose. If you’d like to find your money still there when you come back for it, just say no, and avoid a single point of failure in the old system. If you want the fancy fintech features do a standing order from an old-skool bank to the fintech for your monthly spend, to get nice graphs of your consumerism. But use old-skool for your salary. Return of your capital matters more for cash, because it pays no return on your capital these days.
- Starling Bank Limited (FRN:730166) ↩
- the amount I am adding isn’t going to really shift the overall asset allocation, so I don’t really care whether it’s in gold or foreign assets. I just don’t want to be holding any unnecessary amount in pounds, because the incompetence of this government horrifies me, with the mess they are making of coronavirus I anticipate a clusterf*k of Brexit ↩
- I am aware that there’s a case to be made that the Government discharged a lot of elderly back into care homes from hospitals without testing for Covid 19 early on, effectively saying early deaths, bring it on. These infections then went through the care homes like a dose of salts. Perhaps this was part of a policy to triage the population and avoid carrying the load, but I think April was a bit early to decide who to throw out of the sinking boat first. I hope this was incompetence rather than intent, Dominic Cummings. It’s not something we can feel proud of, but perhaps other countries’ elderly may catch up eventually. ↩