While conventional personal finance wisdom generally discourages hiding your savings under your bed, there’s one way that this might be a sound strategy.
The Penny Hoarder has talked before about how hoarding pennies could be a good investment. In addition, novice coin hunters can learn how to search rolls of collected pocket change for coins with high silver and copper content.
However, while both those methods are proven money-makers, they are also tedious and hard to scale. It’s easy to search through one roll of quarters in search of a pre-1965 coin containing valuable silver, but I’ve found that doing so with all 50 rolls in a standard bank box can take considerable time. Plus, after you search through the coins, you must re-roll and return them to the bank, which requires additional work.
There must be an easier way, I thought.
Indeed there is: buy nickels.
Whenever you have money to put in savings, buy nickels by the box ($100 each at any bank) and simply put the boxes in your basement, in your closet or under your bed.
Consider American nickels as assets. Their denomination is so small, and their weight so comparatively great, that they are generally not worth a thief’s effort. If your house burned down, they would survive the fire, unlike paper money. Even if they were melted into a pile of slag, they could still be worth every dollar that you paid for them -- or even more.
The common American nickel is made from an alloy of two base metals, nickel (25%) and copper (75%), known as cupronickel. Cupronickel is valuable for industrial processes such as shipbuilding, as are both nickel and copper individually, and both metals are listed on commodity market exchanges.
The value of its materials means that each nickel has both a “face value” ($0.05) and a “melt value” ($0.0503316 at the time this article was written, though this fluctuates).
The melt value of a $100 box of nickels was $100.66 when I wrote this post. This means that every box of nickels costs the U.S. Mint $100.66 in metals alone, so they are essentially giving money away. Once the Mint applies stamps and cuts the metal into coins, they also give people the right to redeem that metal for the same price at which it was sold: $100.00.
Two values of coins (face and melt) provide a unique advantage in investments: a guarantee that you will not lose any money. If you bought $100 worth of cupronickel, and the price of nickel and copper dropped (as it did, slightly, while I was writing the second draft of this article), your investment would be worth less money. However, with $100 in nickels, there is no risk of losing money: you will always be able to redeem your $100 box of nickels for $100.
This advantage is the reason many people have started hoarding their nickels: they’re betting on future increases in the value of cupronickel.
Just as the U.S. Mint changed the the penny's composition from mainly expensive copper to mainly much-cheaper zinc in 1982, they are considering making a similar change with the nickel. If they do begin making nickels from stainless steel or zinc, the new coins will slowly phase out the existing inventory of cupronickel coins. Eventually, today’s cupronickel nickels could be as rare as the silver ones on coin hunters’ lists.
Of course, as with all investments, there are some downsides. In this case, the main one is opportunity cost.
If inflation continues to increase and metal prices fall, the $100 face value of your nickels will have less purchasing power as the years go by. Opportunity cost is the effective loss you face as a result of not having invested your $100 in an opportunity that would have provided a greater level of financial growth (like a Certificate of Deposit or an index fund). Opportunity cost is a risk in any investment strategy, as there’s always the possibility that you could have chosen a more profitable investment -- that’s part of the game.
Another drawback to collecting nickels is their size and weight. A standard $100 box weighs 10 kg (each nickel weighs 5 g) and is about the size of a large brick. If you’re collecting a large number, they’ll quickly start to take up space in your home.
Finally, there’s the small detail that legislation makes it illegal to melt down U.S. coins in the United States or to export more than $100 worth of coins.
Despite the drawbacks, many people are building their own stockpiles of nickels, and there are no laws against collecting coins and then selling or trading them with other collectors. For more information and further discussion, you may want to explore the advice offered on forums like Realcent.org.
Your Turn: Will you start hoarding your nickels?
