We’re in quite a situation lately. With mounting layoffs and job losses along with a struggling economy, the importance of having an emergency fund and cash on hand is greater than ever. But at the same time, interest rates on savings vehicles have dropped like a rock. It wasn’t long ago that you could easily get over 4% on your cash in either an online savings account or in CDs. Today, banks are cutting their interest rates almost weekly and it’s hard to find a reputable bank offering much more than 2% these days.
Since keeping cash on hand is important in these uncertain times, what are you to do when you can’t even keep up with inflation? Have you been bouncing around from bank to bank trying to keep up with the highest rates? Are you starting to focus on CDs instead of liquid savings in an attempt to get a higher rate? Or have you started looking at other alternatives?
I personally don’t play the rate chasing game. I’ve been extremely happy with FNBO Direct which generally ranks on the higher end of online savings rates. They also have a great interface and good customer service, so for me it isn’t worth the trouble trying to squeeze out another 50 basis points by moving to another bank right now. Of course, if you’re stuck in an account lagging well behind right now, it can certainly add up by getting a better rate.
But what if you already have a comfortable savings cushion? Have the rate cuts changed where you’re saving money? I know that personally I’ve stopped saving as much and have started to invest a little more. With our savings at a point that would cover the most likely emergencies, rather than putting more cash into accounts earning a percent or two, I’ve been putting a little more in the market. Obviously, I’m doing so with the realization that it may take a a year or two to begin to come out ahead with those funds, but that is a risk I’m comfortable with. I still feel that long-term, the current prices will prove to be relatively good buying opportunities even if we see further declines.
So what about you? Still saving in savings accounts? Moving to CDs or things like I bonds? Or are you also taking advantage of investing in the market? I’m curious to hear how others are handling the rapid decline in savings rates.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.