A Risk Of ‘Cash Stuffing:’ You May Forgo ‘The Easiest Money You Are Ever Going To Make,’ Says Analyst

By Jessica Dickler

These days, savers can get better returns on their cash than they have in nearly two decades.

After a series of interest rate hikes from the Federal Reserve, top-yielding online savings account rates are now more than 5%, according to Bankrate.com.

Yet, some people are forgoing competitive returns altogether in favor of keeping cash, literally, at home.

After gaining popularity on TikTok, more young adults are trying the so-called envelope method, or “cash stuffing,” to stay on budget and out of debt.

The premise is simple: Spending money is divided up into envelopes representing your monthly expenses, such as groceries and gas. When the cash in one envelope is spent, you’re either done spending in that category for that month, or you need to borrow from another envelope.

Such tools can help impose discipline, he said, which is “a reasonable way to stay on budget.”

However, it’s not “the ideal scenario,” he added.

Stashing cash not only forgoes the protections that come with consumer banking, but it may also leave you vulnerable to theft.

Whether you are covered in case of a burglary may depend on your home insurance policy, whereas banks are covered by the FDIC, which insures your money for up to $250,000 per depositor, per account ownership category.

Then there is the additional cost that McBride flagged: a missed opportunity to earn up to 5% on your savings.

For example, if you have $5,000 in a high-yield savings account earning 5%, you’ll make $250 in interest in a year.

“When you are living 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, although this may mean tying up your savings for a few months or more.

For consumers in search of sound financial advice, “there is a tremendous amount of education out there,” said Howard Dvorkin, a certified public accountant and the chairman of Debt.com.

But like all things on social media, not all of the “expert” advice you see is necessarily true, or the best fit for your financial situation. While there are ways to vet traditional financial advisors, it’s much harder to find out the intentions or possible conflicts of interest of someone offering advice online.

“Stay away from TikTok, stay away from Instagram,” he said.