If you’re hesitant to trust the banks and believe you should keep your savings in cash at home, you’re not the only one.
A 2015 American Express survey of Americans of different ages and backgrounds revealed that just under half of respondents keep their life savings in cash at home. Of those that shy away from the banks may squirrel their cash away in secret caches around their house. Popular hiding spots include under a floorboard, under the mattress, or in the freezer.
Yet despite this trend, the risks associated with keeping all your cash at home are much higher than keeping your savings in the bank.
The Risks of Keeping Your Life Savings At Home
There are two main arguments for not keeping your life savings at home: cash in the home is extremely vulnerable, and cash outside of a bank depreciates in value.
You May Think Your Hidden Cash is Safe, But Think Twice
No matter how careful you are, the simple truth is that hidden cash is vulnerable to theft, disaster or forgetfulness.
A quick Google search will bring up plenty of tragic tales of people who hid their life savings at home only to lose it all in an instant:
- A woman in Israel who threw out her mother’s old mattress, not realizing there was $1 million of her cash savings inside.
- An old man who accidentally donated a suit that had $13K in cash he was using to pay his wife’s medical expenses.
- A family whose house was damaged by fire then had the safe with their life savings robbed.
- A boy in Ukraine who spent $4K of his parents’ hidden cash on candy
Can you imagine how hopeless these people felt to see their hard-earned savings wiped out?
Paper cash is particularly vulnerable to fire, flooding, and even termites. Thieves are also savvy to the most common places people hide cash in the home.
Large amounts of cash in the home also isn’t covered by homeowner’s insurance, so once that cash is gone, it’s gone.
It’s always a good idea to keep some money at home in case of emergencies, but only as much as you’d be comfortable losing.
Money Kept in Cash Will Depreciate in Value
If you stash your money away at home long-term, over time it will lose value due to inflation. If inflation grows at around 2% per year, $10K in cash will only effectively be worth $8K after a decade. Although bank interest may seem insignificant, it helps keep your initial investment in line with the current value of a currency. This is particularly true in high-interest savings accounts.
If you have your money in a high-interest savings account that offers 2% interest, after 5 years an initial $10K would have reached just over $11K thanks to compounded interest. Unlike other investments, savings accounts also carry no risks of potentially losing your money in a volatile market.
Every single customer of a bank is also insured against loss should the bank go insolvent. Which brings us to why keeping your money in the bank is the safer option to protect your hard-earned cash.
The Benefits To Keeping Your Money In The Bank
Money in The Bank is Fully-Insured Against Bank Failure
Many people still think back to the Great Depression and worry that keeping their money in the bank means it’s at risk of disappearing. Thankfully, The Federal Deposit Insurance Corporation (FDIC) was created in the wake of The Great Depression to protect all bank customers.
Most major banks, including online banks, pay for FDIC insurance and you are automatically protected. Should your bank go insolvent, you are fully insured for up to $250K in cash assets you had in accounts at that bank. Covered accounts include checking, savings, certificates of deposit, and money market accounts.
The FDIC restored all the savings consumers had in FDIC-covered banks that went insolvent during the 2008 recession.
You Will Always Know Where Your Money Is and Where It Goes
Rather than risk stashing money away and forgetting where it is or how much is left, transactions in banks are meticulously tracked. Through a teller or by using online banking, you can easily see how your finances are changing over time without having to keep your own ledgers.
If you receive checks, you’ve also likely been cashing them through a cashing outlet. The fee associated with this is higher than using a bank, which often allows you to deposit checks for free.
As for the case against account and transaction fees, many banks will waive account and withdrawal fees if you maintain a minimum amount of money in your accounts.
Easier to Pay Your Bills
Using the bank is a one-stop shop to pay your bills. You can easily pay online or in person, often with no fees. Using the bank to pay your bills is significantly cheaper than processing a certified check or money order.
You’ll also have a record with the bank that your bill was paid, eliminating the possibility of dispute.
Fewer Businesses Are Accepting Cash
It’s a sign of the times, but some businesses are now choosing not to accept cash, particularly in large denominations. Digital payments make it easier for businesses to avoid the headache of counterfeit bills. They can also keep an automatic record of transactions while ensuring there are no discrepancies on the books at the end of the month.
Still Uncertain About What To Do With Your Cash?
If you’re uncertain about how you want to store your savings, RepairCreditQuick can help. Contact us and we’ll connect you with one of our financial partners for a free consultation on how to best manage your money.