Four Places To Keep Your Money In A Deflationary Environment

Finance & Money Blog

For decades investment advice on what to do with your money during inflation was plentiful, but in an economy where deflation is creeping into our economy, you may be wondering what to do with your investment money today. When deflation takes hold, your money becomes more valuable without doing anything with it. The following are four places to keep your extra money if deflation arrives.

Cash

Although most Americans don't use cash as much as they have in the past, in a world of deflation, cash is valuable. Of course, the biggest problem with cash is having it lost or stolen. Even in your home, one robbery and you could lose everything. Still, although it is impractical to have large amounts of cash at home, it is probably a good idea to have a little extra currency tucked away safely.

Checking and savings accounts

It may seem like a good idea to keep your cash in the bank in a checking or savings account. Even at zero interest, you are better off if there is any deflation in the economy. The problem with this is that banks can easily move to a negative interest rate on your savings or accessing a new fee on your account. In essence, you are paying the bank to keep you money safe. For this reason, you should limit the amount of money kept in a traditional bank account.

Certificates of Deposit

This type of money market account is close to ideal in a deflationary economy. They can be purchased at a bank. You will be given a specific period of time when the money must stay deposited, but you will also be guaranteed a specific interest rate. Depending upon the level of deflation, you may not get much or any interest on your deposit, but you can avoid a negative interest rate. The one downside is that if the bank were to go under, so will your money. But as long as the bank is a member of the FDIC, your CD will be insured up to $250,000.

United States Treasury Bills

These are similar to a CD, but you are essentially loaning money to the federal government. Like a CD, you will know in advance of their purchase the time period and interest rate. They will pay less in interest than a commercial CD, but you will not have to be concerned about the limits of your investment. Although your money is not insured, you will only lose your money if the government defaults on its debts.

Remember, if deflation comes to the economy, the best investment you make will be those that have great liquidity. Cash is truly king in a world of deflation. Contact a local credit union, like Rio Grande Credit Union or a similar location, for more tips and info.

10 May 2016