Mattress Savings vs. Banks & the Stock Market

Since my last posting, we have learned a great deal more about the mattress savings account. My coworker, who will hence be called Applepapa by request, actually kept this cash under his mattress for 2 & ½ years!! Not to belabor the point, but let’s crunch some numbers and see what that money could have done if at the bank. From what we know Applepapa added about $2000 (averaging $800 a year) to the mattress savings over the course of the 2 & ½ yrs. Let’s assume the following interest rates; 3% CD’s & Low Risk Mutual Funds, 7% for IRA’s & Moderate Money Markets, and 12% for Aggressive Stocks & Bonds. Now, show me the money…

The numbers show us that if Applepapa had kept the money in a CD or low risk mutual fund for the 2 ½ yrs he would have earned an additional $720 in interest (CD’s usually earn 4-6% interest, but for our purposes we aimed low). With that extra money Applepapa could have bought an additional 55 cases (30packs @ $13) of Pabst Beer at the local liquor store or 288 beers ($2.50 each) from his favorite bars (Pabst was his drink of choice). Now, if he could have waited another 6 months to withdraw the money from a mix of aggressive growth stocks & bonds (which usually earn 12-20%) he could have savored an additional 327 case (9810 beers in total) or 1,705 beers while chilling with friends at his favorite bars. I guess the plus side of mattress savings is that he won’t be able to afford being an alcoholic, but I’m going to go out on a limb and say he might have been happier with more beer. (Even if it is Pabst) However, poor Applepapa pulled the money out of the mattress savings at $10,000 after the 2 ½ years.

Long case short, your money is always better off in the bank. Plus there is the added benefit of good sleep without lumps of cash under your mattress. Cheers!!

Just a side note: If the 2008 credit crunch and stock decline had hit Applepapa when his money was at it’s peak and he lost 30% (like many devastated people out there have), he still would have $9984.03 at a grand lose of $15.97 (6 beers). And if the history of bear markets tells us anything, he would make that back with an additional 20% if he kept the money in the market for another 12 months (average bear markets make returns of 32% after 12 months according to Ameriprise Financial).