Letter Re: Pre-Paying Utility Companies in Anticipation of Worsening Banking Disruptions?

Dear Mr. and Mrs. Rawles,
Thank you for your excellent blog. My husband and I are benefiting tremendously from the hard work you have put in to this valuable resource.

My question: With banking integrity a growing uncertainty, would it be prudent to devote our rather limited capital to build up a credit balance with our utility providers (water, electric and natural gas) in anticipation of possible interruptions in bank transactions? We do have modest contingency back-up systems for all three supplies but as long as the grid holds up we will use the utilities.
Sincerely, – Mrs. T. from Idaho

JWR Replies: I do not recommend pre-paying utilities, at least not under the current circumstances. By pre-paying the utilities, you are effectively giving them an interest-free loan. For the sake of flexibility, you are far better off setting aside an equivalent amount in greenback cash. This is what is commonly called “mattress money”. (But you’ll need a much safer place for it. (See my “Through the Looking Glass” wall cache post from August, 2007 for detailed recommendations on constructing hidden caches in your home.)

With greenback cash on hand, you will still be able to make payments directly at the utility offices, or of course simply mail them money orders. Even in the event of a major banking crisis (complete with bank closures or perhaps even a national “banking holiday”), money orders will likely still be available from the US Postal Service and from drugs stores or convenience stores, and will still be accepted in payment.

If the economic situation deteriorates–for example if inflation jumps to double digits (or more), and the postal service becomes unreliable, then that is the time to consider pre-paying your utility bills and perhaps even pre-paying your property taxes.