Ask Paul: I have $100k cash hidden in my house

Dear Paul,

I have put aside two lots of $50,000 in cash ($100,000 total) for each of my children to use for either a wedding or house deposit in the coming years.

Currently, the cash is hidden in fireproof satchels in a home safe. I'm concerned about - with the talk about becoming a cashless society - whether I should change this cash for money orders or deposit it into a secret account?

I don't want the kids to know about this gift until the time is right, which may be another five to 10 years or so. - Suzanne

Goodness, Suzanne, I am very admiring of your efforts to put cash aside for your children and love the use of the fireproof satchels, but unless I am missing something, I don't think we are at huge risk of a war, invasion or the next Great Depression.

But the money does have one near certain, insidious risk: inflation.

If the money sits in the fireproof bags for, say, the next 10 years, and inflation averages, say, 3%, the buying power of $100,000 will be less than $70,000. The next problem is that property tends to appreciate, on average, by around 5% to 6%.

So, if buying a property were an objective, in 10 years the value of property could easily be 50% higher, or more. I do understand why you would like to keep the amount of money you have put aside to yourself. It is a very generous gift.

Let's look at your options.

First, we are moving to using less cash, but I really don't see a cashless society for many decades, so I don't see money orders being a great idea.

Second, by 'secret account' I imagine you mean a secure, high-interest bank account. This appeals to me a lot more. The money would be secure from theft and you would earn around 5%. This would keep the kids' money closer to inflation.

So, my vote is to pop the money into a secure bank term deposit or high-interest account.

Frankly, keeping so much cash at home frightens the daylights out of me due to the risk of a robbery and its value being destroyed by inflation.

Ask Paul: Where are they now?

Has your question appeared in Ask Paul over the years? We want to hear from you! Email money@moneymag.com.au to let us know how your situation turned out. We will publish a selection of these later this year.

Get stories like this in our newsletters.