When you hold greenbacks—cold, hard cash—in your personal possession, there is a substantial cost. It is what the economists call opportunity cost. The opportunity cost is the amount you give up by not having that money at work, earning interest.
If you keep a lot of cash stuffed in a mattress, or even in a safe-deposit box, you’re not even breaking even; you’re losing money. Inflation is slowly eating away at the value of your savings. That’s one reason investors don’t recommend holding anything more than a few thousand dollars in greenbacks. Another reason is that large amounts of cash are often viewed as a lure to thieves or even as a sign of criminal activity—like drug dealing.
You’re far better off keeping most of your cash in an interest-bearing account of some type—even a 5% passbook savings account—than socked away where it’s not earning anything. But you can do better than 5%….