Keeping cash on hand is a risky business. Unscrupulous acquaintances and even family members can be tempted to "skim some off the top" when you're not around if you aren't careful to hide it well. A person who prefers to hold onto cash can put it in a savings account or a safe deposit box, where it is under lock and key.
A still safer way to hold cash is not in currency, but to put it into a deposit or checking account in a commercial bank that is a member of the Federal Deposit Insurance Corporation. Up to $10,000, this insurance means prompt and full payment to a depositor, even though the bank fails.
A checking account can help its owner in several ways: depositing and paying by check, he avoids the risk of losing or being robbed of currency; paying bills by mail, he saves time; the stubs in his checkbook give him a record of expenses; and his canceled checks, returned to him by the bank, are proof that he made payments.
Many banks make a service charge for handling a checking account. In effect, a bank says: "We must charge you what it costs us to handle the currency and keep track of your account, unless you offset our expense by letting us have a certain minimum amount of your cash, also without charge."
By maintaining the minimum deposit that the bank wants, thereby eliminating the service charge, a depositor may cut his expenses by a larger amount than the income he would receive by investing that money elsewhere.
But suppose that by cutting the balance in his checking account a depositor is able to buy something for cash, rather than pay by installment. Probably the bank's service charge is cheap compared to the extra cost of installment buying, as discussed a couple of pages back.
A Christmas Savings Club is a way of collecting savings in a peculiar form of bank account. Each week throughout the year a club member is supposed to deposit the same amount in his club account. Shortly before Christmas the bank closes the account by paying to each member the total of his deposits, making no charge for expense and no payment of interest for the use of the depositor's money. The popularity of Christmas Savings Clubs seems to be due to such points as these: saving is more fun (or less painful) when the goal is as definite as next Christmas; the weekly sacrifice is small, as little as 50 cents; and lots of acquaintances are doing the same thing. Many people want to belong to a large group, no matter whether the activity is saving money or attending a ball game.
Sometimes a man avoids bank accounts and paying by check because he wants no record of what happened. By receiving income in the form of currency and holding it, with no records, maybe he intends to avoid paying income tax. But this is both dishonest and illegal, and a tax dodger, if caught, pays a penalty added to the tax. The larger the amount of income involved, probably the greater likelihood of getting caught. Besides, unless the unrecorded cash is spent within a few years, the saving in tax is likely to be smaller than the potential income lost through failure to invest the money.
All in all, the same rule holds true. It's okay to keep a little cash around the house for emergencies or the kids' allowance, but it's best to diversify. Investments, especially conservatiev ones, can make money over time. The cash sitting in the shoe box at the back of your closet is only going to dwindle, never appreciate.