I have a good college friend coming in on Tuesday for 10 days with his wife and I’ll be giving them the tour around Western Japan. Since I’m writing about personal finances I’ve been debating whether or not to include their trip out here or not. I figure it would be a shame not to include what we’re up to just because I think it’s going to be a lot of fun, but to keep the theme somewhat on line, I will be focusing on how money is spent and other finance related items much like I did with my trip to get re-registered in Japan. Hopefully it will be both educational from a finance and a cultural perspective. If nothing else, I’ll get lots of photos of Japan in between the posts to brighten the pages up and hopefully inspire those reading this to plan a trip to Japan sometime in the future (it’s a wonderful place to visit).
There is a good reason that I don’t keep my savings in a Japanese bank — the interest they pay. While you may think that the percent interest that your bank pays is low, it’s nothing compared to Japanese banks.
As you can see, the Japanese post office pays a whopping 0.02% (note that isn’t 0.2% – it’s 200ths of a percent) for a year commitment of your money. That means if you deposit $10,000 into the postal savings system, at the end of the year you’ll have $10,002 to your name. Nor of course, if you are willing to lock your money up for a longer time, you can get a better interest rate. Agree to have you money locked up for 4 or more years and you’ll make $7 a year for every $10,000 you deposit.
Makes you want to put all your savings into a Japanese banks, doesn’t it?
“The safest way to double your money is to fold it over once and put it in your pocket.” – Kin Hubbard
The personal finance and debt reduction carnivals are both live. Frugal Underground is hosting the one on debt reduction and My Money Blog is hosting the one on personal finance.
As I mentioned before, when it comes to investments, saving money is usually the diamond in the rough that nobody recognizes. In fact, saving money is plain and simply the best investment you can make. It is, however, often difficult to convince others of this.
I did a search for “The best investment you can make” and got a return of over 78,000 matches. When I added “saving money” to the search, it dwindled down to 418 matches, and of those returned on the first page, none advocated that “saving money” was the best investment you can make.
While saving money may not be in vogue when it comes to an “investment strategy,” it comes with a number of qualities that most investments would love to have. Here are some of the reasons that saving money is the best investment you can make:
Low Risk: Saving money money is an extremely low risk investment to make. While it is possible to lose money while trying to save it, these instances are few and far between.
High (sometimes instant) Returns: If you gain 20% a year on a stock investment, it would be considered a banner year. You can get the same 20% return (and often more) instantly without any risk and with minimal effort several times a week when you use “saving money” as an investment strategy.
No Capital Gains or other taxes: The money that you save completely tax free — it isn’t subject to any taxes on the Federal, state or local level.
No Brokerage or other Fees: There are no broker or other fees that eat away at your return since you achieve the savings yourself. That means when you have a 20% return, the entire 20% goes to you.
Easy To Implement: A money saving strategy is easy to implement and doesn’t require extensive study. Basically, anyone can do it — even a child.
Where else can you find an investment with all those positives at such a low risk?
If you have a large amount of money sitting in an ING or Emigrant Bank Account which you won’t need for 14 to 15 months, you should seriously consider investing some of that money in Government I-Bonds. The Bureau of Labor Statistics released The Consumer Price Index (CPI) for September yesterday which rose 1.2%. This was the largest one-month increase in since 1980 with most of the blame being placed on a spike in oil prices as the result of Hurricanes Katrina and Rita.
The CPI rates are used to calculate what rate the the US Government I-Bonds will pay come November 1, 2005. The rates rose 2.85% semi-annually or at a 5.69% annual rate. This new rate (5.69% + fixed rate component) will replace the current I-Bond rate of 4.8%.
Currently the I-Bonds pay a fixed rate of 1.2% + the inflation rate. The fixed rate portion could also change, but should fall somewhere between 1.0% and 1.8%. This would mean that the I-Bond would pay a minimum of an incredible 6.69% and as much as 7.49% over a six month period beginning in November depending on what is decided for the final fixed rate portion.
I-Bonds can be purchased for as little as $25 with a maximum purchase of $60,000 in a one year period ($30,000 in TreasuryDirect and $30,000 in paper bonds). While the interest earning period is 30 years, you can redeem them after 1 year (with a 3 month interest penalty) or after 5 years with no penalty.
For those who have money sitting in online bank accounts earning between 3% and 4%, moving any money that you won’t need for 15 months would make sense. You can buy I-Bonds in either late October or late November (you’ll get full interest for the entire month no matter when you purchase them during the month, so you might as well leave them in the online bank until the end of the month).
If you buy this month, you’ll get 4.8% for 6 months and 6.69% for 6 months then leave the money in for another 3 months so you don’t lose the high 6.69+% rate on the 3 month penalty. If you buy in November, you’ll get 6 months at 6.69+% and whatever the new rate is renewed at 6 months from now. While both have some unknowns, either looks like a much better return than leaving it in your current online bank account.
You can find out more information about the I-Bond at the Treasury Department Website