• It seems that holding plain cash (say after selling stocks and waiting for other opportunities to come up) in a brokerage or bank account is a bad idea (due to counterparty risk) (Clenow, 2015).
  • Investing that extra cash in short-term government bonds (say 1 or 3 month) seems to secure the monetary value in case the brokerage / bank goes bust.
  • Question: does the same counterparty risk protection apply to money kept in savings accounts (similar to bonds, but do not seem to be a financial instrument)?

Side Note: Would you consider Fixed-Income ETFs to serve this purpose as well? Having had a quick look at some ETFs it seems that their price can fluctuate (i.e. is not always on a slow upward trend; see iShares 1-3 Year International Treasury Bond ETF), which seems to disqualify using them as a temporary hedge against counterparty risk with some small positive interest.

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    Can you please give the full citation of the Clenow paper? There are obviously some risks, but I want to know how they reached the conclusion that those risks are so great as to make it flatly a "bad idea", or if they made a more nuanced statement. Aug 14, 2016 at 17:10
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    Also, the answers will depend in large part on which government's bonds you are talking about, and how the savings account is regulated. For instance, in the US, federal government bonds and FDIC-insured savings accounts are both ultimately backed by "the full faith and credit of the US government", and many people consider that the default / counterparty risks are negligible. Aug 14, 2016 at 17:12
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    Mind adding a country tag? It would be arrogant (or ignorant, take your pick) for me to assume US and answer very US-centric. Aug 14, 2016 at 18:04
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    @NateEldredge In terms of savings accounts -- would be UK or Germany. In terms of bonds, would depend on the yield, availability of short-term maturity bonds and stability of the country (e.g. at this moment in time UK, New Zealand, Norway, Canada, Israel; not looking into countries like Greece or Argentina). Aug 16, 2016 at 9:14
  • "holding plain cash" as in paper currency, at your house?
    – RonJohn
    Jun 11, 2021 at 7:24

2 Answers 2


Are savings accounts just as safe as government bonds in terms of counterparty risk?

As you have not specified where your savings account is held ... Generally most countries have a Deposit Insurance underwritten by the Central Bank / Government. These safe guard the deposits in savings account [every country would have a guideline as to what is savings account] to a certain extent [the limits and how it gets counted, for example you individual account, your joint account with spouse, kids etc]. The UK FSCS link is here, insures GBP 75000. For Germany its here. For general Deposit Insurance, the wiki link

Generally the Deposit Insurance should be better than Government bonds as these are meant for common people and are of less hassle.

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    OP actually did specify a few countries. money.stackexchange.com/questions/69493/…
    – user
    Aug 29, 2016 at 9:57
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    @Dheer So the general answer is: (a) if you are managing a relatively small sum of money (no more than e.g. 75k GBP/account) you put it in a savings account or just plain account (if you don't like the interest) -- it is safe (insured by the government) and hassle free, (b) if you are managing larger sums than e.g. 75k GBP/account your best bet is treasury bonds. Aug 30, 2016 at 10:41
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    @Dheer The general theme of the question is counterparty risk. And two key vehicles have been discussed: bank/savings accounts and bonds. It would be interesting to get a perspective on fixed income ETFs in this context. Aug 30, 2016 at 10:43

For consumers in the US bank accounts are generally FDIC insured up to $250,000, while securities accounts are covered by SIPC (up to $500,000, $250,000 of which is cash) per account type.

This effectively eliminates counterparty risk, but more importantly reduces the need for investors to 'run on the bank' (i.e. take their money out if they think the bank might fail) which can cause the bank to fail regardless.

If you are dealing with sums larger than that, you may need to spread the accounts across multiple banks or brokerages to maintain the levels of insurance required.

Government bonds are 'safe' because the government can always print more money (albeit creating an inflation risk). However some governments are more creditworthy than others. Some corporations have higher credit ratings than the government, mainly because they have large cash reserves.

Both fall under 'cash or cash equivalents' section of a balance sheet. Both are (in general) 'safe' but there may be differences depending on the bank, the amounts, the government, etc.

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