- After becoming popular on TikTok, more people are trying the envelope method, or “cash-stuffing,” to stay on budget and get out of debt.
- But keeping money at home instead of in a high-yield savings account has its drawbacks; such as leaving yourself vulnerable to theft and losing interest of up to 5 percent.
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These days, savers can get better returns on their cash than they have in nearly two decades.
Following a series of rate hikes by the Federal Reserve, interest rates on the highest-yielding online savings accounts are now above 5%, according to Bankrate.com.
“Moving your money into a high-yield savings account is the easiest money you’ll ever make,” said Greg McBride, chief financial analyst at Bankrate.com.
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But still, some people forego competitive returns altogether in favor of literally keeping cash at home.
After gaining popularity on TikTok, more young adults are trying the so-called envelope method, or “cash-stuffing,” to stay within budget and get out of debt.
The logic is simple: Spending money is divided into envelopes that represent your monthly expenses, such as food and gas. When the cash in an envelope is spent, you either run out of spending in that category for that month or you need to borrow from another envelope.
“There’s a back-to-basics mentality,” said Ted Rossman, senior industry analyst at Bankrate.
He said such tools could help enforce discipline and were “a reasonable way to stay on budget.”
But he added that this was not the “ideal scenario.”
Storing cash not only waives the protections of consumer banking, it could also leave you deserted. vulnerable to theft.
Whether you are covered in the event of theft may depend on your home insurance policy; whereas banks are covered by the FDIC, which insures your money up to $250,000 per depositor per account holder category.
There’s also the added cost that McBride points out: missing the opportunity to earn up to 5% on your savings.
“Overall the introduction of the idea of budgeting is probably a positive thing, but if people are turning to cash rather than benefiting from the highest returns we’ve seen in a long time on high-yield savings accounts, then they’re leaving the account.” “Money is on the table,” said Matt Schulz, LendingTree’s chief credit analyst.
For example, if you have $5,000 in a high-yield savings account earning 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; but this may mean tying up your savings for several months or longer.
Dvorkin recommends looking for trusted sources like the National Foundation for Credit Counseling or the Consumer Financial Protection Bureau.
“Stay away from TikTok, stay away from Instagram,” he said.
