Forget Treasuries: An Argument for Bank Savings

NEW YORK (MainStreet) — As angst over financial and economic conditions deepens, even gold is losing its luster. Slackening demand has driven prices down to around $1,600 an ounce, from $1,900 just a few weeks ago. Today, the hot safe haven is the good old U.S. Treasury bond.

Should a small investor follow the pros into Treasurys?

Not until one has considered an even simpler, safer and more liquid alternative: bank savings. They’re not sexy, but under today’s conditions it’s hard to beat savings accounts, money markets and certificates of deposit, as all come with guarantees against loss, courtesy of Federal Deposit Insurance Corp. insurance.

Big investors such as the wealthy, pension and insurance funds favor Treasurys over bank savings because FDIC insurance is limited to $250,000 per account, not enough for an investor with millions. But for most ordinary folks $250,000 of coverage is plenty. And there are ways to extend that limit with multiple accounts.

“FDIC insurance is backed by the full faith and credit of the United States government,” the agency says on its site. “Since the FDIC began operations in 1934, no depositor has ever lost a penny of FDIC-insured deposits.”

Gold, of course, has long been the holding of choice in troubled times. Today, you don’t have to own coins, bars or jewelry to invest in gold. Exchange-traded funds, gold-mining stocks and other options make gold investing very easy.

That ease is probably a factor in gold’s big price gains over the past decade, allowing fearful investors to push up demand very quickly. And that high liquidity may also explain the recent pullback in gold prices, as investors can act quickly on their fear that gold may be in a bit of a bubble.

For small investors, the lesson is plain: Gold is not an ideal safe haven because its price can fall, hard and fast.