Many people store their excess money under the mattress, and for a good reason. Keeping money under the bed is a safe place where you don’t have to worry about it being stolen unless someone breaks into your home or a guest sneaks into your room. A historical context dates back to the late 1800s that explains why many Black Americans keep money under their mattresses. However, keeping money under the bed is detrimental and no longer serves as a safe practice.
When I got my first job at sixteen, I was required to have my pay directly deposited into either a checking or savings account. However, my friend’s parents and even some of my cousins gave me words of “wisdom.” They advised me to keep whatever I was not spending under my mattress. In their eyes, this was solid advice passed down to them from their parents and probably their parents’ parents. The reason stems from the closure of the first bank for emancipated Black Americans in the late 1800s, Freedman’s Bank, which President Lincoln and Congress established in 1865. Nine years later, in 1874, Freedman’s Bank, which had over three million dollars in assets (equivalent to over sixty-five million dollars in today’s money), was closed. Since Freedman’s Bank did not have federal government protection, nearly 1/2 of those who deposited money into Freedman’s Bank never received any money back. The other 1/2 who received their money were not fully reimbursed. As a result, of so many Black Americans losing their entire life savings, many felt more secure keeping cash under their mattress instead of at a bank. Now this practice of storing cash under the bed has been passed down from generation to generation due to lost money from bank failures such as the Freedman’s Bank.
Unfortunately, generations after 1933 did not pass down and probably were not aware that the Federal Deposit Insurance Corporation, FDIC (established in 1933) insures bank deposits up to $250,000. Credit union members also have the same insurance through the National Credit Union Association.
What does this mean? If there is ever a bank or credit union failure that causes the organization to close, up to $250,000 of your money has protection, and you will receive full reimbursement for your money. No longer is there a need to keep cash under the mattress for a robber to steal from or a guest going into your bedroom. Another bright side is most bank accounts also pay a minimal interest rate. So instead of your money sitting under your mattress, now your money will make a small amount of additional money.
Earning interest is how you can keep up with or outpace inflation, the greatest taxation without legislation. Unlike money sitting under your mattress which loses value. If you place $100 under the bed, you will still have the same $100 10 years from now, given no one steals it. But that same $100 in ten years will not have the ability to buy you the same amount of items it can today. Think about $20; back in the early 2000’s you could easily purchase an entire meal and drink at Red Lobster. Now you are lucky if you can buy an entree for $20, especially seafood, due to inflation (plus demand.)
Unless you invest money to earn interest, your money will lose value over time. Investing is one of the few ways to outpace inflation. There are many ways to invest money, such as in the stock market, bonds, real estate, certificates of deposit (at your bank/credit union), and even blockchain investments. Every type of investment carries an associated risk. Before investing, it is crucial to review your emergency savings account, money goals, and risk tolerance. Placing money under the mattress carries the risk of theft and guarantees the chance that your money will lose value over time.
Before protection from the FDIC, keeping your money under the mattress was a low-risk way to protect your money. However, consider investing your money after establishing an emergency savings account at a bank or credit union, if you seek for your money not to lose value. If you need help better understanding or establishing your money goals, risk tolerance or how much to have in your emergency savings account contact an Accredited Financial Counselors at Tailored WealthSaver today.