If you’re keeping money in the bank, you know how low rates are. And if you’ve done any food shopping lately, you know how high prices are. But what you may not have considered is what low savings rates and high inflation can do to your savings.
Think about this: the inflation rate this year is hovering around 4%, while the average bank money market account is paying less than 2. In other words: your money is loosing value faster than your interest rate can compensate: you’re going backwards.
What should you do? Well, you could consider stocks. Over time, they beat the rate of inflation, but this year the stock market is loosing money.
In the past, you could’ve just bought government I-Bonds. They pay a fixed interest rate, plus an inflation kicker… so you were guaranteed to beat inflation. But, not any more.
10 years ago, when I-Bonds first came out, the fixed rate was around 3%. So, you would earn 3% on top of the rate of inflation. Now, I-Bonds carry a fixed rate of 0%. So, instead of a return guaranteed to beat inflation, now you’re guaranteed not to. Looking for an alternative? Many professionals recommend CD’s.
So, the conservative investor has to think savvy. Go bank to your bank and, if you’re not happy with your interest rate, shop it around. Odds are that, with a good online resource, you’ll be able to find a bank paying 40-50% more.
Subscribe by email
Like this article? Sign up for our email updates and we’ll send you a regular digest of our newest stories, full of money saving tips and advice, free! We’ll also email you a PDF of Stacy Johnson’s ’205 Ways to Save Money’ as soon as you’ve subscribed. It’s full of great tips that’ll help you save a ton of extra cash. It doesn’t cost a dime, so why wait? Click here to sign up now.This story is linked to with a thumbnail of 'Keep The Change' by Flickr user AdamSelwood.