I’m a Banking Expert: 5 Things You’re Doing That Put Your Money at Risk
Written by
J. Arky
Edited by
Rebekah Evans
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The safest place to put your money might be a bank — but even then, it’s not entirely protected. While the image of bank robbers coming into a vault to steal all the cash on hand is a far fetched possibility, there is another culprit that might be endangering the funds in your account: you.
That’s because there are common mistakes that everyone makes which jeopardizes their money in ways that are both obvious and slightly unexpected. Noticing and understanding these behaviors and trends can curb them so future mistakes are not made or money is not put at risk so easily.
GOBankingRates asked banking experts what the five things you’re doing that puts your money at risk and how you can avoid doing them again.
Not Budgeting
Tracking your finances begins by looking at your expenses, comparing it to your income and seeing what you can afford. In one word: budgeting. If you are not doing it, you are potentially hemorrhaging money.
“Creating a budget is the most effective way to take control of your finances,” explained Ben McLaughlin, resident finance expert and president for Raisin. “It allows you to track your expenses, pay bills promptly, save for your goals, prepare for unexpected costs and plan for the future.”
“Setting aside time to organize your paperwork and examine your finances helps you feel more confident and in control of your money,” McLaughin said. “Take a moment to review your budget and recent spending, plan for upcoming events and consider potential changes for the future.”
Not Saving Money
Setting money aside whenever you can is key to making sure that you have money now and down the line, potentially when you really need it for an emergency or a major life change.
“Given the rising cost of living, saving might feel challenging and your ability to save will depend on your income,” McLaughlin said.
“Nevertheless, it’s essential to consistently set aside some money for unforeseen expenses, which could otherwise lead to financial difficulties. Establishing an emergency fund, regardless of its size, can help you handle unexpected changes and prevent you from accumulating debt,” he explained.
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Staying With Low-Paying Interest Accounts
Holding onto that low-paying interest account is one way for you to not necessarily put your money at risk, but hinder its potential growth to turn into wealth.
“Remember that if your money is in a low-interest deposit account, it loses value due to inflation,” McLaughlin said. “Inflation is the gradual increase in the cost of goods and services over time.”
As an example, McLaughlin said, “If the inflation rate is 2%, an item that costs $1 today will cost $1.02 in a year. If your savings aren’t growing at the same rate, your money loses value yearly. Many interest-bearing savings accounts more than match the inflation rate, but keeping your money in an account that earns very little or nothing guarantees that your future purchasing power will decrease.”
Exceeding the FDIC Limit
When your money is in a banking account, you can have some peace of mind that it’s insured by the Federal Deposit Insurance Corporation (FDIC), a federal government corporation that offers deposit insurance to depositors in American commercial banks and savings banks. But even with FDIC coverage, it only goes so far to covering a certain amount of your funds.
“When saving a lot of money, spreading your savings across multiple banks is essential,” McLaughlin said. “Most people know that FDIC insurance covers deposits of up to $250,000 in most cases, but they often need to realize that this limit is per depositor, not per account.”
“If you have multiple savings, CD, money market or other deposit accounts with one bank, any combined total balances exceeding $250,000 are unprotected if that bank goes under,” he explained.
Contributing Too Much to Your 401(k)
It’s not always better to save as much money as possible for retirement, right now, according to McLaughlin. However, there is such a thing as adding too much money to your 401(k).
“While it’s essential to prioritize retirement savings, it’s crucial to remember that this money won’t be accessible for a long time, possibly several decades, without facing significant penalties except in cases of extreme financial hardship,” he said.
“If you overcommit to retirement savings now, your personal savings will suffer and if you encounter financial difficulties, they could be depleted quickly,” McLaughlin explained, noting that most experts suggest setting aside 10% to 20% of your income for retirement.
“The good news is that the more money you make, the more you can allocate toward your golden years,” McLaughlin said. “Including savings in your budget is the foundation for long-term financial success, requiring real discipline to stick to it. Ensure you’re not undermining your hard work by engaging in activities that could jeopardize your savings.”
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