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Originally Posted by Aaron W.
Considering banks to be unsafe is really strange. You can say that it's not the most efficient thing, but "not really that safe"? That's somewhat absurd, and I'll note that you didn't actually argue the unsafeness of it.
Agreed, I phrased my initial assertion really poorly.
Savings accounts aren't much safer than mutual funds. Thirty years ago, there was more separation between banks and Wall Street. Banks loaned mortgages and assumed both the risks and benefits thereof. Lots of small banks were in play.
Over the past thirty years, and I think the 2008 financial crisis highlighted (at least to me) two things: 1. The amount of vertical integration (places you can get a savings account that also sell mutual funds), and 2. The amount of consolidation that has gone on.
So now it's not a totally separate question about a savings account at Localbank or a mutual fund at Fundcorp or buying fancy derivatives at Hedgecorp. It's what aisle you walk down at Giantmegafinancialsuperstore.
I think the federal government lacks the appetite to let Giantmegafinancialsuperstore go under, making their fancy derivatives almost as safe as savings accounts used to be.
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Over the short term, it's not that big of a deal. Unless you've got hundreds of thousands of dollars just sitting around in a bank, it's small enough to not care.
But at least have your money in a money market account if you've got enough.
I don't know if you're implying that a money market account requires a minimum balance (mine doesn't, or it's small enough that I didn't notice), but CDs are available to everyone for sure so I'll use rotating CDs (set up 1 per quarter for a year, each lasting a year so one matures every quarter) as an example.
You typically get 1-2% more with this system than with a savings account. Back when savings yielded 2-3%, the CD method gad yields in the 4-5% range. How significant it is depends on the relative size of the amount saved vs earnings. If you have half a year's salary in savings, 1-2% of the savings is 0.5-1% of your income. But if you have two years' salary in savings, that's 2-4% of your income.
Yes, there's probably way more people in the former situation or worse than in the latter situation or better, but that's not an excuse for not being optimal.