Interest Rates Drop Again

**photo** · 12-03-2011, 08:35 AM

It is disgusting. It would be so difficult for someone new, just starting a career and trying to save, to see any long-term benefit from saving, since that compound-interest principal seems almost non-existent at that point.

However, for those who have saved and have accumulated a bit, there are a few money market accounts in local credit unions that pay 1-2%, usually for cash over $25,000 or $50,000. But for those who will need cash in a short while, it at least beats the savings accounts. "Under the bed" almost beats savings accounts these days...

I just saw that my ING Direct savings, which was 1% a few months ago, is now .85%.

**Nightfly** · 12-03-2011, 01:32 PM

Try peer-to-peer lending. Returns over 10%; although certainly not risk-free like a savings account. However, much less work (and risk, IMO) than trading stocks. In addition, while the money isn't quite as liquid as funds in a savings account, it doesn't have to be tied up for years on end, either. You're simply never going to get a decent rate of return for keeping your money liquid; you're paying for that liquidity, unfortunately. That's why for amounts over a few thousand, it's probably best to have your money in an investment as opposed to parked in a money market or savings account.

**snafu** · 12-03-2011, 03:25 PM

KwiJoe, when you include price increases as inflation, those 'savings' vehicles are more aptly named accumulation sites. The financial institutions are not there to serve clients, they are 100% profit driven. Have you noticed they have added a slew of new fees and increased existing fees as they are no longer maintaining their 4 point spread or getting bonus returns from re-selling re-packaged [dud] mortgages to the unsuspecting.

There a several other things you can do to grow your savings but they all have a risk premium.

**bennkar** · 12-03-2011, 06:18 PM

You can thank the Fed for today's insanely low rates. I know its more risky, but I would try putting part of my savings into dividend producing stocks. Although first I would pay off any higher interest debts. That's what I concentrated on for the last 5 years, and now I am mortgage free. Of course that now means I'm in the same situation - where to invest my money. Even with the current uptick in the market, I'm not convinced this will hold for the short term.

You could look into TIPS (Treasury Inflation Protected Securities). Those are meant more for long term saving. You don't get much now, but down the road you might.

**orenwach** · 12-04-2011, 06:42 AM

You might want to check out Discover Online Savings, which has a 1.00% interest rate.

**skydivingchic** · 12-04-2011, 07:17 AM

If you have the discipline to track your savings and checking separately, you could look into high yield checking accounts. Start here. My checking account currently pays 3% up to $15,000 and the associated savings account pays 1.25% up to $30,000. The checking accounts will require a minimum number of debit card purchases each cycle, usually 10-15 in order to earn these rates. Still not the 5-6% of several years ago, but better than the sub-1% commonly available in savings accounts these days. And if there is not a bank listed in your local area, look at the ones listed elsewhere. I live in California and the bank I've been using for ~3 years now is in the midwest in a state I have no connection to. I was able to open the accounts online without ever going to the actual bank.

**BMEPhDinCO** · 12-06-2011, 08:37 AM

The point of low rates is to encourage people to spend and thus stimulate the failing economy. You notice rates were much higher a few years ago - when the economy was (artificially) high.

You should set an upper limit for how much you need in savings, and then investigate the alternatives mentioned, as well as others such as bonds, dividend stocks, etc. Most likely GE, Google, Coke, etc won't be failing any time soon and would be safe stocks...do keep in mind that cities and states CAN go bankrupt and you'd lose the bonds (Same with feds, but they are lower risk/lower reward).

And just piddle along, knowing at least if something goes wrong immediately, you'll have cash to cover it. We pay for peace of mind - for me, it's a pretty high worth for a moderately high cost.

**Slug** · 12-06-2011, 09:53 AM

It's a difficult situation. More people are saving more which increases deposits. Fewer people are qualifying for or taking out loans. This reduces the bank's profitability because with all that new cash, they have to go out and buy risk-free assets like Treasuries which are paying next to nothing. And, then there's you and I demanding a 1%+ return. Banks would love to loan more if qualified applicants would come out of the woodwork, but with so much uncertainty who feels comfortable taking on new debt? Not me.

**KiwiJo09** · 12-06-2011, 05:32 PM

Originally posted by Slug View Post

It's a difficult situation. More people are saving more which increases deposits. Fewer people are qualifying for or taking out loans. This reduces the bank's profitability because with all that new cash, they have to go out and buy risk-free assets like Treasuries which are paying next to nothing. And, then there's you and I demanding a 1%+ return. Banks would love to loan more if qualified applicants would come out of the woodwork, but with so much uncertainty who feels comfortable taking on new debt? Not me.

I completely agree. I'm still digging myself out of the hole I created. I'm definitely not looking to get anymore debt. I understand much better. Thank you!

I was mostly just really mad because I hate seeing myself saving so much and then I get next to nothing in return. It stinks, in a basic sense.

Interest Rates Drop Again