Tuesday, December 9, 2008

Have we succomb to this?

Forget the economist here's a real sign that we're in a recession. Smart Money recently ran this article about people who are burying cash. (You should read this article. It's got terrific example of normal people who are considering moving their money.) We've all heard stories about relatives who buried money during the Depression or crazy uncles who stuff money under their mattresses. But has the economy really sunk that low?

It's not just the Dow that's got people scared it's all the mid-year bank failures that makes people lose trust in financial institutions. No matter how young you are, our country as a whole will never forget the pain of the Great Depression. We are taught about in history classes, it's the backdrop for a multitude of movies and our parents will tell us how their parents suffered through.

But we've forgotten that the FDIC was created in the midst of the Depression. The NCUA was implemented a good while later. Customers of the banks that failed during this time did not have the same protection we have today. In Is Your Money Safe, I explained how the NCUA (federal insurance agency for credit unions) insures your money. A short while ago the limits for both FDIC and NCUA were raised from $100,000 to $250,000. Your money really is still safer with a financial institution.

If your thinking that you hide some cash to use for emergencies like natural disasters be careful. First make sure you remember where it is. I read a blogpost by someone who claimed that they were going to bury their money far from their home and use a GPS to relocate it. Sounds risky to me. I've geocached a bit and while sometimes it's ridiculously easy to find things at other times things can be a little off and very frustrating. And if you do think about burying money have you considered how it will deteriorate? You might dig up you stash to find that it's turned to confetti. There's also the deterioration of inflation. Those thousands that you bury today will be worth much less in a couple of years. Meanwhile, you're friend who leaves their money in a financial institution is earning interest. Even a tiny amount of interest is better than money that's losing value in whole in the ground.

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