Put Your Savings To Work
There are a lot of reasons to have a healthy savings account; peace of mind, liquidity, disaster preparedness. Wait, maybe those are all the same reason. In any case, you should save. And that saving should benefit you. Fiscally, as well as mentally. Save money to earn interest, at least at some level. I remember the days, not so long ago, of promotional 5% interest rates. Sigh. If only I’d had the balance then that I do now. Mooning for the time of milk and honey (or WaMu) won’t bring them back. We’ve got to work with what we’ve got, which best case scenario is an interest rate under or right around 1%. I don’t know about you, but I’m determined not to let my money be any lazier than necessary.
I tend to be a passive saver. I actively save the money, then I passively let it sit there are collect dust. I’ve built a big Emergency Fund that way. Probably too big, in actuality. It should be diversified. Or something. Stock and Bonds and Portfolios. Yep. Probably. Not gonna, though. I’ll leave such things to my 401(k), my IRAs, Roths, and other smart Jewish friends. The Emergency Fund is separate. Cash. No worries about mortgage backed securities or brokerage fees. Just money begetting more money. This has been the state of affairs for quite some time. My singular fat account, protected by a couple feeder accounts and some targeted savings. Comfort. Everything is fine. As long as I’m beating the inflation rate.
And there’s the rub. All that comfortable money could actually be losing value if it isn’t earning an interest rate to at least match inflation. Well, shit. Finance guru, I am not. But, I’m search engine savvy enough to find out the average inflation rate for 2011 was 3.2%. For 2012, we are looking at about 2.7%. I’m sure it’s more complicated than that, but out of curiousity, what rate you getting on your savings account these days?
I’ve got a promotional 6.0% at my Credit Union. I win. On one account. With a maximum balance of $500. Hmmm, less winning. It’s all down hill from there. ING Direct, to whom I’ve been loyal for nigh on these many years, they’ve inched me ever downward to a meager .80%. Yes, that’s point eight. I think they hope I won’t notice. All that passive savings is costing me money. Begging the question, what’s the point of having a big fat savings account if it’s losing purchasing power?
Lucky for The Emergency Fund, Stuff does not generally appreciate, and Shit inevitably happens. Factoids that keep my monies safely collecting dust. That doesn’t mean I’m not trying to mitigate the damage.
Chase Rates. Sacrifice Liquidity. At least a little. Two strategies I’ve historically been loathe to pursue. Switching accounts results in lost interest during days of transfer, not to mention hassling with some unavoidable paperwork, login credentials, and potentially closing old accounts. It’s not something to be done frequently, but I am considering longer term CD’s (with acceptable early termination fees even) at institutions I’ve not previously worked with. Still not going to beat inflation. With those longer term rates, I can get closer though. Having my money locked up for a year or two or longer is also not high on my list of saving pro’s. Why have it, if I can’t use it without a fee? .80% though. That’s a call to…
Leave Your Comfort Zone. Treasury I-Bonds get a little closer to inflation still, and update semi-annually. Terms are longer yet again, but with industry standard penalties after the first year, and let’s face it, I won’t be terminating The Emergency Fund in it’s entirety anytime soon. How about Peer to Peer lending? On sites like Prosper one could certainly beat inflation, with a heck of a lot more inherent risk. I love the idea of cutting out the middle man. However, that might put me closer to mortgage backed security territory than I’d like. The reality of all that depreciating money is just painful enough to inspire me to research and be on the look out for new options. Maybe even to try one.
One of our goals for 2012 was to find a better interest rate. It’s time I do that, build a proper CD ladder, and start climbing. All the while, keeping my eyes open for an opportunity with what I consider an acceptable blend of risk and reward.
Do you take inflation and interest rate into account? What’s your savings strategy?