Protection from credit risk
Which asset performs best?
A key concern for ensuring the security of your savings is to limit the impact of credit risks, but how do cash and gold bullion bars compare here?
When we keep cash in a bank, this money is essentially lent to bank and it ceases to be our money. Banks are obviously in the business of lending money to make a return and generate profits. As a result the savers and depositors that entrust their money to the bank are exposed to the lending practices of the bank. If the bank manages its lending badly, this credit risk can come back to haunt savers in the form of bank runs and bankruptcy. This is why cash savings pay an interest rate, to compensate you for your risk. Cash in the bank is not risk free and can be affected by financial crises.
In contrast physical gold bullion in an allocated gold investment account is free from credit risk entirely. Your physical gold is not leant to anyone – it just sits there. This is why when you buy gold on our platform, you do not earn any yield or interest. Your gold is never lent to anyone. You are opting for gold’s stability and security, and in doing so reducing credit risk.
Should I buy gold as protection from credit risk? Are banks safe from credit risk? Be sure to understand these issues before deciding what’s best for your savings.