5 Worst Places To Keep Your Savings, According to Experts
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Andrew Lisa
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Molly Sullivan
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Elevated interest rates are bad news for anyone looking to finance a major purchase, but they’re music to the ears of savers looking to compound their deposits.
The trick is to keep your cash from falling into financial quicksand.
“Stashing money in the wrong places could end up significantly impacting how far it goes over the long run,” said Ashley Akin, CPA, senior tax associate and expert contributor at the investing platform Dividend Earner. “However, there are wiser alternatives to consider.”
Here are a few places where you never want to keep your savings.
A Checking Account
Most experts agree that at least some of your savings — and probably the bulk — should be in an FDIC-insured high-yield savings account (HYSA), which can currently earn you north of 5%. Even the rare checking account that pays interest offers a pittance in comparison and most pay nothing — so strip yours down to stuff your HYSA.
“While convenient for daily transactions, checking accounts typically offer minimal interest, meaning your money is losing purchasing power against inflation,” said former bank branch manager Steve Crews, mortgage lending specialist and founder of the trading platform Golden Road Reborn.
Running a bare-bones checking account was risky business back when federal regulations limited savings withdrawals to six per month. But since the Federal Reserve lifted those restrictions during the pandemic, you can transfer money to checking manually or through overdraft protection as often as you like while maximizing the number of dollars working for you in savings.
Keep just enough in checking to cover pending debits and put the rest in a linked HYSA.
A Big Bank Savings Account
CapitalOne 360 Performance Savings pays a solid 4.35% APY with no fees or minimums. While you can do better, that’s an otherworldly yield compared to most big, corporate banks with global reach and physical branches.
Chase pays 0.01%, which is as close to nothing as you can get without actually getting nothing. Wells Fargo pays the same. Bank of America pays 0.01% to 0.04%, but even that comes with account minimums and other hoops.
While big banks offer ubiquity and the comfort of brand-name familiarity, they, by and large, do not offer yields worthy of your deposits.
“A common mistake in savings placement is keeping too much money in traditional savings accounts,” said Max Avery, author, keynote speaker, business development professional and founder of private investment platform Syndicately. “While these accounts offer liquidity and safety, their low interest rates often fail to keep pace with inflation, leading to a gradual erosion of purchasing power.”
Your Safe or Sock Drawer
It can be prudent, or at least comforting, to keep a small amount of cash in the house to cover an emergency if the power goes out or some other extraordinary circumstance arises where only cash will do. For most households, that’s a few hundred bucks at most, and anything beyond that represents wasted potential.
“One client of mine was keeping a portion of their emergency fund at home rather than in a bank, thinking it would give them better control,” Akin said. “While wanting a sense of security is understandable, cash just lying around loses value over time through inflation with no chance to gain.”
Cash at home is also vulnerable to theft, fire, flood, dogs, toddlers and anything else that can destroy physical money even faster than inflation.
Certificates of Deposit
Your emergency savings should be in an HYSA, fully liquid and there for when you need it, as soon as you need it. But if you have some extra, you might be considering a certificate of deposit, which pays you a higher rate to lock your money in for a set term — at least on paper. The problem is that CD yields are mostly on par with HYSAs — the very best CDs pay only slightly higher rates than the best savings accounts. You can do better with any money you’re willing to shelve for a term.
“Although banks have increased their rates for savings accounts and CDs they are still well below what one can earn in a money market account or short-term T-bill fund offered at a brokerage house,” said Rudi von Abele, senior analyst at Guild Investment Management. “Our suggestion would be to open a brokerage account and link it to your retail bank account so money and interest can easily be moved between accounts.”
Precious Metals and Commodities Funds
Investments and savings are separate because the first rule of saving is to defend your principal, which no investment can promise to do.
However, some people mistakenly believe that precious metals and other commodities join bonds in offering a safer alternative to the stock market.
“One of the worst places for people to keep their savings is in commodities such as gold, copper, oil and corn,” said financial attorney Chetan Patil. “These might seem a solid investment as current prices for these goods are high. In reality, however, the current period of high inflation is far from an ideal time to start investing in commodity funds. Although this type of investment has fewer risks compared to crypto or NFTs, the price of goods is very dynamic and a return on your investment is rarely certain.”
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