Daniel Grill | Getty Images
Today, savers can get better returns on their money than they have in nearly two decades.
After a series of rate hikes by the Federal Reserve, interest rates on highest-yielding online savings accounts are now above 5%, according to Bankrate.com.
“Moving your money into a high-interest savings account is the easiest money you’ll ever make,” said Greg McBride, chief financial analyst at Bankrate.com.
More from Personal Finance:
The inflation breakdown for September 2023 – in a graphic
Social Security’s cost of living adjustment will be 3.2% in 2024
Lawmakers are targeting credit card debt, interest and fees
Still, some people forego competitive returns altogether and prefer to literally keep cash at home.
How cash stuffing works
As TikTok becomes more popular, more and more young adults are trying out the so-called envelope method, or ““Cash stuffing” to stay on budget and stay out of debt.
The premise is simple: pocket money is divided into envelopes that represent your monthly expenses like groceries and gas. If the money is spent in an envelope, you have either exhausted the spending in that category for that month or you need to borrow money from another envelope.
“There’s this back-to-basics mentality,” said Ted Rossman, senior industry analyst at Bankrate.
Such tools could help enforce discipline, he said, which is “a reasonable way to stay within budget.”
However, it is not “the ideal scenario,” he added.
Storing cash not only means foregoing the protections that come with consumer banking, but it could also leave you exposed vulnerable to theft.
Whether you’re covered in the event of a burglary may depend on your home insurance, while banks are backed by the FDIC, which insures your money for up to $250,000 per depositor per account holder category.
Add to that the additional cost that McBride mentioned: a missed opportunity to earn up to 5% of your savings.
“In general, introducing the idea of budgeting is probably a positive thing, but if people are relying on cash instead of benefiting from the highest returns we’ve seen in a long time on high-yield savings accounts, then they’re leaving money behind.” Table,” said Matt Schulz, chief credit analyst at LendingTree.
For example, if you have $5,000 in a high-interest savings account and earn 5%, you’ll earn $250 in interest per year.
“When you live paycheck to paycheck, every little bit helps,” Schulz said.
Alternatives such as Treasury bills, certificates of deposit or money market accounts have also emerged as competitive options for cash, although this may mean tying up your savings for a few months or longer.
Dvorkin recommends seeking out credible sources such as the National Foundation for Credit Counseling or the Consumer Financial Protection Bureau.
“Stay away from TikTok, stay away from Instagram,” he said.
Don’t miss these CNBC PRO stories: