- Since it became popular on TikTok, more and more people are trying the so-called envelope method, or “stuffing cash,” to stay within their budget and stay debt-free.
- But there are downsides to keeping cash stashed at home rather than in a high-yield savings account, including putting yourself at risk of theft and forfeiting up to 5% interest.
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These days, savers can earn higher returns on their cash than they have in nearly 20 years.
After a series of rate increases by the Federal Reserve, interest rates on the highest-yielding online savings accounts are now above 5%, according to Bankrate.com.
“Moving your money into a high-yield savings account is the easiest way to make money by far,” says Greg McBride, chief financial analyst at Bankrate.com.
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Nevertheless, some people choose to literally keep their cash at home, forgoing competitive returns altogether.
After gaining popularity on TikTok, more and more young people are trying the so-called envelope method, or “stuffing cash,” to stay within their budget and stay debt-free.
The premise is simple. Expenses are divided into envelopes that represent monthly expenses such as groceries and gas. Once you use up the cash in one envelope, you either stop spending in that category for the month, or you have to borrow from another envelope.
“There’s a back-to-basics mentality,” said Ted Rothman, senior industry analyst at Bankrate.
Such tools help enforce discipline, he said, and it’s a “reasonable way to stay within budget.”
But that’s not an “ideal scenario,” he added.
If you stash your cash, you’re not only missing out on the protections that come with consumer banking services, you may also never have it. prone to theft.
Coverage in the event of theft may vary depending on your home insurance policy, but the bank is FDIC-insured and insures up to $250,000 per depositor per category of account holder. To do.
Plus, there are additional costs that McBride warned about. That’s a missed opportunity to earn up to 5% on your savings.
“Introducing the idea of budgeting in general is probably a positive thing, but if people are relying on cash rather than taking advantage of the best returns we’ve seen in a long time in high-yield savings accounts. If they do, they’ll leave their money on the table,” said Matt Schultz, chief credit analyst at LendingTree.
For example, if you have $5,000 in a high-yield savings account with a 5% yield, you’ll earn $250 in interest in a year.
“When you’re living paycheck to paycheck, every little thing helps,” Schultz said.
Alternatives such as Treasury bills, certificates of deposit, and money market accounts are also emerging as competitive options for cash, but this may mean tying up your savings for more than a few months.
Dvorkin recommends looking for reliable sources, such as the National Foundation for Credit Counseling or the Consumer Financial Protection Bureau.
“Please stay off TikTok and Instagram,” he said.