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Can a mattress ever beat a savings account?

November 08, 2011

| Money Rates Columnist

When is it time to remove your savings from the bank and start hoarding it under your mattress? The answer, according to a surprising number of Americans, is right now.

An October survey by Allianz Life found that 27 percent of respondents believe the safest place to keep their savings is not in a savings account or investment fund--but rather under their bed.

The steady stream of bank failures and grim financial news in recent years has likely fed the anxiety behind this statistic. But even in times of financial turmoil, there are very good reasons to avoid this strategy.

Guy Penn, principal and founder of G.M. Penn Wealth Management in O'Fallon, Mo., says that stashing savings at home is unwise for a number of reasons.

"(Avoiding banks) is dangerous on many levels," says Penn. "Not only are there physical risks such as fire or theft, but also the long-term risk of inflation, which slowly eats away at the relative value of stagnant cash."

The 27-percent figure suggests that a significant number of Americans remain distrustful of the nation's banking system. Still, there are consequences to relying on emotional responses when making financial decisions.

Penn suggests that consumers educate themselves to remove emotional reactions from their financial decision-making process. He recommends FDIC.gov as a place to start, which details how deposit accounts in banks and credit unions are both federally insured through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor.

Penn also points out that while numerous banks have failed, merged or been bailed out since the beginning of the financial crisis, no Americans have lost any money on deposits in any of these failed institutions since the accounts are typically assumed immediately by another bank.

Katie Libbe, vice president of consumer insights for Allianz Life, admits that while the survey results shouldn't necessarily speak for Americans as a whole, they still provide a window into the anxieties consumers have regarding the financial system.

"Although we doubt that more than a quarter of Americans actually think it's a good idea to store their money under a mattress, something can be learned from this response regarding the fear and uncertainty people have about their retirement savings," says Libbe.

Savings account rates and strategies

Instead of keeping savings at home, Penn recommends that consumers make a financial plan that identifies safer and more profitable options for savings and retirement funds.

"The choice of where to keep your money depends first of all on the purpose of the funds," says Penn. "If you are deciding where to keep your emergency savings, you should make sure that the funds are completely liquid."

Penn says that while savings account rates and money market rates remain low, doing some research can improve your yields significantly.

"No one should expect a huge return on their emergency savings because in order to get a bigger return you need to take on some risk," says Penn. "(But) there are banks that pay one percent or more on some savings accounts and money market accounts, which is better than the going rate for these types of accounts at many places. At least you would be earning some interest while having complete access to your money."

As always, comparing current interest rates is an excellent place to start when it's time to create a new savings plan.

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