"What are the Risks of Passbook Savings Accounts"

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First Risk of Savings Accounts is Low Rate of Interest

That's if the financial institution you have entrusted with your money goes out of business, taking your money down with it.

However, since passbook savings accounts are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC) -- and to $250,000 for retirement accounts -- this is not a major risk.

If there's such a break down of the economy that your bank fails and the FDIC cannot step in and reimburse you, that would mean the entire country (and probably the world) was in great trouble and you're probably have even pressing immediate problems.

Second Risk of Passbook Accounts is Inflation

Passbook savings accounts pay such a low rate of interest that their purchasing power cannot keep up with inflation.

The third risk results from the second one -- that's the opportunity cost of having your money in such a low interest account, when you could be earning more money with insignificantly more risk of loss.

Passbook Savings Accounts Come With an Opportunity Cost

That is, there're many other ways to earn income from your saved capital

Putting it into a passbook or any savings account dooms you to receiving the lowest possible income from it.

Yes, the risk is effectively zero. But you can get much more income from other types of investments which also have effectively zero risk (such as Treasury bonds) or extremely low risk.

Next: What are the disadvantages of passbook savings accounts

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