Where is the Safest Place for the Money?

Many people are worried about the banks. They have lost their confidence in the financial system and the banks. They consider their money at a bank account not anymore as safe, because they fear to loose all their cash in a case of bankruptcy. Thus more and more people have begun to hoard cash at home.

"My home is my castle", says a famous proverb. Is the home, however, the safest place for money in cash? People can develop a lot of creativity to hide cash in thousands of Dollars or Euros at home. Some hide quite a fortune at home. Most of the people deposit very much money on places as the sugar box in the cupboard, among their linen, below a heavy rug etc. Others have a safe installed in their bedroom. Professional burglars find the common hideouts quickly. There is no burglar-proof place for cash in bulk at home. What happens with the money if the home catches fire? The cash is at risk and notes burn easily. It is clear that the home is everything than a safe place to deposit much money.

There is another disadvantage of hoarding money at home. There is no interest or other yield on that money. Cash at home is not protected against devaluation from inflation. The money is dead and it does not work.

The safest place to hoard money is still to save it at a bank account. The bank pays interest on the savings. The yield on an account protects the savings at least partially against the inflation. The bank works with the savings and lends the money to small businesses, housing companies, home owners and other kinds of businesses. The money circulates and keeps the economy running. Hoarding money at home, however, weakens the national economy. It makes matters worse and extends the time span of the economic crises.

Not everyone who hoards the money at home might be convinced by the above arguments and brings the money to a bank account. The United States and most of the European countries have a legislation that warrants a minimal amount of the money on bank accounts against the consequences of bankruptcy. The warranted amount is mostly around 100’000 to 100’000 USD or Euros, according to the laws of these Western countries. The people get this money paid in a case of bankruptcy of the bank. People who have more savings can distribute their savings to accounts on different banks. They can avoid holding more than the warranted amount of money on a single bank. Thus they reduce their risk to loose the bulk of their savings in a case of a bankruptcy.

Many people own securities, e.g. bonds or stocks, besides of cash. They deposit their securities at a bank. These securities are not part of the balance sheet of a bank and thus no part of a bankruptcy case. They may not be frozen and the bank clients have access to their securities in a case of a bankruptcy of their bank.

The financial crisis has shown that banks have mastered it in a different way. The big international operating banks have been mostly in trouble and they have needed assistance by the rescue programs. They have been strongly involved in commercial activities with Mortgage Backed Securities, Credit Default Swaps or Collateralized Debt Obligations. They have lent money to highly leveraged Hedge Funds or Private Equity Firms. These banks also have had insufficient equity on their balance sheet. These kinds of banks have been in trouble.

There have been other banks that have mastered the financial crisis in a successful way. They even have attracted a lot of money from worried clients of other banks. These banks have been mostly regional banks or banks of cooperatives, municipalities, states or provinces. They have abstained from the risky investment banking. They are mostly dedicated to the typical retail banking for the saving community and small business owners. These banks have shown as safe and reliable. They are a good alternative to the big, international players in the financial world.

More about how to make money or to save money can be read at Make Money Tip. The website also offers free tools for personal finance, a link to the best free online course about financial markets and a section with ideas to make money.

Liliane Waldner