The site for the Federal Deposit Insurance Corporation (FDIC) states that "no depositor has ever lost a penny of insured deposits since the FDIC was created in 1933."
But FDIC insurance only covers "$250,000 per depositor, per FDIC-insured bank, per ownership category." This applies to both the initial principal and any interest earned.
As for the stock market, an investment in the would have yielded an average return of 10.26% over the past 66 years, through Dec. 31, 2023. But the stock market's long-term record is dotted with downturns that shake the confidence of some investors. For example, the in 2000 took 56 months (or 4.6 years) to recover from.
The search for someplace for your money beyond banks and other financial institutions can occur due to a lack of confidence in a government or financial system, losses suffered due to a financial crisis, or simply a belief in the value of having other ways to protect and grow your funds.
Here are seven suggestions. One, in particular, is considered the safest place for your cash.
Key Takeaways
- FDIC protection for bank deposits is reassuring but it may be smart to have other choices for your money, as well.
- Federal bonds are considered very safe, but as a result, returns can be low.
- Real estate investments can produce income but may be risky.
- Precious metals, especially gold, offer an alternative to stocks and bonds.
- Cash "under the mattress" can make sense to some but it isn’t secure, earns no return, and loses value due to inflation.
7 Places to Keep Your Money
1. Federal Bonds
The U.S. Treasury and Federal Reserve (Fed) would be more than happy to take your funds and issue you securities in return. A U.S. government bond still qualifies in most textbooks as a risk-free security.
Unfortunately, because they're considered free of risk, government bonds have lower returns than other types of debt. For example, in March, 2020, the yield from a 10-Year Treasury Note was just 0.318%, an all-time low.
After the Fed started raising the federal funds rate in 2022 to combat high inflation, rates rose to more attractive levels. That 10-Year Treasury rate was 4.27% as of Feb. 28, 2024. But once inflation is back under control, rates are expected to drop.
If the low rates don't deter you, U.S. government bonds provide one of the safest places to put cash.
2. Real Estate
In disquieting times for the banks, the allure of real estate investments can be strong. Become a landlord. Put down some of your principal on a property, fix it up a bit, rent it out, and have your tenants pay off the mortgage. If you're interested in a shorter-term opportunity and have more experience, maybe try flipping houses.
Or consider putting money in real estate investment trusts (REITs), an easier, more convenient, and less expensive way to invest in real estate for many people.
Done right, real estate can have a huge financial upside. Residential and diversified real estate investments averaged about a 10% return through early 2021, which was slightly better than the S&P 500 in that period.
Yet it can also be a risky and sometimes fickle investment. As of Feb. 28, 2024, the Dow Jones Equity All REIT index showed a one-year return of -0.91% and a 10-year return of 2.87%.
In the short term, real estate can be an unreliable investment. An extreme example is the housing bubble that burst and led to the Great Recession. The global economic downturn that began in 2007 resulted in a housing market crash and millions of people losing their jobs and homes.
Investments in stocks and bonds are not insured by the FDIC. However, the Securities Investor Protection Corporation, known as SIPC, does protect cash and securities held in customer accounts at thousands of brokerages, up to a value of $500,000 per account.
3. Precious Metals
One doomsday scenario in which financial markets cease to function holds that gold, silver, and other metals such as platinum or copper will continue to retain their value, if not appreciate.
The likelihood of having to return to a barter system with physical goods is minimal, but it may make sense to hold some percentage of your assets in precious metals. Precious metals historically have had a low or negative correlation to other asset classes like stocks and bonds. That means when those investments go south, metals are unlikely to follow, at least very far, and may even increase in value.
4. Luxury Assets
This category of tangible assets encompasses fine art, cars, watches, diamonds, and other jewels, and just about anything that qualifies as a collectible.
In their favor, they're objects that can be seen, held, and sold, compared to a bank account that could take time to collect on if the financial institution that housed it ceases to exist.
That said, luxury investments are hardly a sure bet. Data on their historical returnsare elusive. They are generally thought to lag stock market returns. Yet they have periods of rapid appreciation due to either strong financial market performance or periods of popularity (when underlying demand increases, pushing value up).
5. Cash, Hidden Away
Stuffing money under your mattress is a cliché. Yet keeping funds at home unquestionably keeps them close at hand, if not necessarily as secure as they might be in a bank. You could also hide your assets in a safe deposit box or safe.
It's probably a good idea to keep some amount of cash within easy reach for those times when you can't get to your financial institution but find yourself in a short-term liquidity crunch.
You may experience more extreme circumstances such as a natural disaster (e.g., earthquake, tornado, flood) that prevents access to your bank. The threat of a cyber-attack has become increasingly real; your financial institution, the financial markets, or the entire financial system may be offline for days.
Even so, carefully consider how much cash you keep at home because inflation will steadily erode the value of currency over time.
Fast Fact
Cash held in a safe deposit box at a financial institution is not insured.
6. Businesses
Buying a business can provide a return on your investment, as long as the enterprise generates a profit. In very bad times, businesses can suffer and even close.
But if the idea of investing in a particular business interests you, consider a farm. It's a particularly tangible business (if not always a profitable one). You don't necessarily need to get your hands dirty. With a so-called investment farm, you hire staff to handle the actual agricultural operations.
Owning farmland is a good fit for those with a survivalist mindset, too, since the land can produce food on the off-chance of a societal calamity or a meltdown of the global financial system.
7. Cryptocurrency
Cryptocurrencies are another alternative investment option. While Bitcoin may be the most well-known, there are a number of other crypto choices.
Crypto offers individual investors a unique opportunity to get into what is still an emerging technology.
But bear in mind that it is also a high-risk, high-reward opportunity. For example, after soaring to stratospheric highs, bitcoin lost about three-quarters of its value in 2018.
You shouldn't invest much, or any, funds in cryptocurrencies that you need to rely on for your future. Yet for other discretionary capital that you may have, they offer the potential for attractive returns. Most analysts concur that crypto is here to stay.
Where Do Banks Invest Their Money?
Banks offer their customers a place to stash their cash safely, usually for a very modest rate of interest. In turn, the banks invest that cash, aiming to earn more money than they pay out to customers. They lend it to businesses and consumers as loans, making a profit from the interest payments. They also make money on the fees they charge their customers for various services. In addition, banks invest a portion of their deposits directly in assets such as real estate, bonds, and stocks.
Where Can I Buy Gold and Silver?
You may be able to buy gold and silver bars and coins at a local bank or local precious metals dealer. However, online dealers may offer the greatest choice of purchasing options.
Can I Invest in Bitcoin ETFs?
Yes, spot bitcoin ETFs began trading in the U.S. in 2024. They're available at online and full-service brokerages and can be bought for taxable or non-taxable (retirement) accounts.
The Bottom Line
Banks and the stock market may always be looked upon with some suspicion by savers and investors who have experienced financial losses related to one or the other.
For the especially wary, the seven alternatives to a traditional bank or stocks noted above may make sense for at least a percentage of their net worth. But given their risk, none should comprise too large a component of your total investments.
