Where do you keep your money? If you’re like 29% of Americans, it’s hidden in an old shoe box, buried under the towels in your linen closet, or tucked away in your sock drawer. An alarming number of people, including 41% of millennials, are keeping their savings at home, a 2015 American Express survey found, and more than half of savers have their cash squirreled it away in a “secret” location.
The old-school under-the-mattress savings technique appeals to people who use an envelope system for budgeting, as well as those who don’t trust banks. But it comes with risks, including the possibility your money will go missing.
“Hiding cash in a secret location is never a good idea,” Coleen Pantalone, associate professor of finance at the School of Business at Northeastern University, told Main St. You may forget where you put your money, or you could die, leaving behind clueless heirs who inadvertently sell the box with your savings at a garage sale.
Hidden in your home isn’t the only place where your money isn’t as safe as you think, especially if the savings vehicle is the wrong fit for your goals. Certificates of deposit (CDs) may seem secure because they earn guaranteed interest and are FDIC insured, but they’re the wrong place for a young person to put their retirement savings, because your return will be likely so low you’ll actually lose money to inflation. A 401(k) is good for retirement savings but a terrible place to keep your emergency fund because you can’t easily get at the money and you’ll pay penalties for early withdrawals.
While the best place to keep you money depends on your situation, there are some places where it rarely, if ever, belongs. Here are four places where you shouldn’t keep your money.
1. Under your mattress
Before there were banks on every corner, many Americans had no choice but to keep their savings at home, but those days are long gone. While having some cash on hand for emergencies is smart, stashing your life savings under your mattress or in an old coffee can is a recipe for disaster. Money left moldering under your bed is actually losing value, since you’re not earning any interest to keep up with inflation. Not to mention the risk of losing your nest egg to theft, fire, or some other disaster. If you must keep your savings in cash, at least put it in a safe deposit box (though most banks discourage this). Or take a cue from Walter White and hide it in a storage locker.
2. In a savings account
Saving regularly is a responsible money move, but stashing your cash in a traditional savings account may be causing you to lose money. The average savings account was earning a measly 0.06% in interest in July 2016, according to the FDIC. Even at today’s relatively low inflation rates, that’s still not enough for your savings to keep up.
While savings accounts are a fine place to keep relatively small amounts of cash you’ll need in the short-term, they’re not a great place to keep your entire nest egg. For retirement and other long-term goals, you’ll need to look for investments that generally offer better returns, like stocks. But you do want some money in an easily accessible account so you can cover unexpected expenses like an emergency car repair. To earn a better return on your savings, look for higher-interest accounts from credit unions and community banks, or find a high-yield checking account.
Remember the Beanie Baby craze? In the late 1990s, people were so wild about these little stuffed animals that they bought them by the thousands, and rare beanies sometimes sold for thousands of dollars. One father “invested” more than $100,000 in Beanie Babies, only to see his savings vanish when the fad petered out. It’s a reminder that while collecting may be a fun hobby, it’s a risky place to keep your life savings.
“[T]he only way to make money investing in collectibles is to find someone who is willing to pay more for them than you did,” Gus Sauter, a senior consultant to Vanguard Group, told the Wall Street Journal. That can be a lot harder than it sounds, especially if the market for your collection dries up (see Beanie Babies). Plus, if you have an emotional attachment to your collection, selling it when you need cash can be difficult. That doesn’t mean you shouldn’t spend your money on rare comic books or signed first editions, but you should realize what you’re doing isn’t an investment.
“Buy what you like because you might be holding it a long time. When you do sell, consider yourself lucky if you make a profit,” Rick Ferri, the founder of Portfolio Solutions, told the Journal.
4. Penny stocks
Buying penny stocks has never been a smart investment. These bargain-basement stocks in small companies trade for under $5 a share. Information about the companies and their financials is hard to come by, and the stocks are usually sold over-the-counter, which means they don’t have to meet the same requirements as stocks sold on exchanges like the NYSE, Investopedia explained.
While the prospect of snapping up thousands of cheap shares before a stock takes off makes penny stocks tempting, they’re a high-risk investment. The chances of the company whose penny stock you’re buying turning into the next Google are slim, and they can be difficult to sell. Worse, scammers sometimes talk up an ultra-cheap stock to artificially inflate the price, then sell their overvalued shares just before the stock’s value collapses, a scheme known as “pump-and-dump.”
“Investors in penny stock should be prepared for the possibility that they may lose their whole investment,” the SEC warned.