TL;DR

  • Banks keep the risk-free yield from U.S. treasuries instead of passing it to savers.
  • Nominal yields are eroded by inflation and taxed, resulting in negative real returns for many.
  • Dollar supply expansion reduces the value of money over time, making it a poor store of value.
  • Wealthy individuals avoid these issues by holding assets like stocks, gold, and cryptocurrencies.
  • The recommended strategy is to keep short-term cash for expenses, and long-term wealth in diverse assets including crypto.

Many people assume that saving money in a bank is safe and beneficial, but this article from Bankless argues otherwise, describing it as a “three-layer scam.” It explains how banks, inflation, and monetary policy erode the value of money saved in traditional bank accounts, and suggests alternative strategies involving assets and cryptocurrencies.

The first scam involves banks withholding the risk-free yield that U.S. government treasuries provide. Treasuries currently offer about a 4.2% yield with virtually no risk, but banks do not pass this yield on to their customers. Instead, they keep the returns generated by investing deposited dollars in treasuries or money markets. Wealthy individuals bypass banks by holding cash directly in treasuries, while middle-class savers unknowingly lose out on this free income.

The second scam is that the yield savers think they receive is nominal and not real. Inflation erodes purchasing power annually, often outpacing the nominal yield on savings. Over the past four years, real yields have been negative in most years, meaning savers effectively lose money. Moreover, the nominal yield is taxed as income, further reducing the real return. Inflation is framed not as a natural economic force but as a hidden tax imposed by governments and central banks, disproportionately harming middle-class savers.

The third scam is more fundamental: the money itself is not a reliable store of value. The U.S. dollar supply continually expands, diluting the value of each dollar over time. This increase in money supply is rarely discussed but has a significant long-term impact on wealth preservation. Historical data shows that holding wealth in assets like gold or stocks has outperformed holding cash in dollars over decades. The article emphasizes that dollars function as a medium of exchange, not a store of value, making them unsuitable for long-term savings.

Given these issues, the article advises keeping dollars only for short-term needs such as daily expenses, taxes, and emergencies. For earning yield, it recommends holding short-term treasuries or money market funds. For long-term wealth preservation, it suggests investing in a diversified portfolio of assets, including stocks, real estate, gold, and cryptocurrencies like Bitcoin and Ether. While these assets can be volatile, volatility is distinguished from risk, and long-term investors are encouraged to ride out price fluctuations. The article also encourages using crypto tools and exchanges to stay on the frontier of financial innovation while avoiding excessive risk.

This perspective challenges traditional financial advice and highlights how inflation, taxation, and monetary policy impact savers. It underscores the importance of understanding real yield and money supply dynamics in preserving wealth. The rise of cryptocurrencies is presented as a disruptive force offering new opportunities for wealth storage beyond conventional banking.

Market context: In an environment of fluctuating interest rates and persistent inflation, traditional bank savings accounts often provide yields below inflation, resulting in negative real returns. Meanwhile, cryptocurrencies and alternative assets have gained attention as potential hedges against inflation and currency debasement, though they come with their own risks and volatility.

In summary, the article warns that saving money in banks leads to lost yield, hidden inflation taxes, and devaluation due to money supply growth. It advocates for a strategic approach that combines short-term cash management with long-term asset allocation, including crypto, to protect and grow wealth over time.

Sources: https://www.bankless.com/read/dont-save-your-money-in-a-bank

See also: How to store Bitcoin safely

See also: What is DeFi?

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This article is a summarized news brief for informational purposes only. Not financial advice.

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