I’m still reasonably young, yet even I still remember when I could get a decent interest rate on savings. Rates on savings these days are pretty terrible though, and for as much as I don’t like it, I can only imagine how frustrating this is to retirees. Though we live in a consumer society, it would be nice to earn a little something extra on our saved dollars.
As Bloomberg.com notes in its post “Americans Can’t Retire When Bill Gross Sees Repression”, “Feeble returns on the safest investments such as bank deposits and fixed-income securities represent a “financial repression” transferring money from savers to borrowers, says Bill Gross, manager of the world’s biggest bond fund. Workers 65 and older, struggling with years of depressed yields, are the only group of Americans who are increasingly employed or looking for jobs, according to Labor Department participation-rate data.”
But retirees aren’t the only ones being hurt by these repressed rates.
Gone are the rates of yore
I talk to baby boomers who reminisce about the days of the early 1980s when they could get returns on savings of 10 percent or more. Even in the early 2000s, I remember having a certificate of deposit with an associated interest rate of near 7 percent. And more recently still, before we bought our first home, we were getting around 3.5 to 4 percent on a high-interest savings account in 2007 and 2008.
Unfortunately, those days are gone…at least for the foreseeable future. And they have been replaced with savings accounts that pay virtually nothing in interest and certificates of deposit where you’re lucky to earn a measly percent or two interest, and that’s for the higher balance accounts.
For those of us with little or no debt…
Our family has made a concerted effort toward paying off any and all debt. We rushed to pay off student loans in less than three years, largely avoiding vacations, new vehicles, and many of the consumer trappings of a post-graduate lifestyle in order to do so. We downsized homes so that we could afford to buy a smaller place outright, riding ourselves of a mortgage in the process. And we use just one family credit card, which allows us to pay off the attached balance in full each month.
So if or when we have some extra cash at the end of the month, but don’t necessarily want to put it into the stock market, it presents a problem of sorts.
…where do we put our savings?
Not being able to find good rates on savings can be frustrating, but we don’t get discouraged. Instead, we use this opportunity to turn lemons into lemonade and work hard to continue on the path to financial freedom. Some people might see low or no rates on savings as a reason not to spend their extra dollars. They hear financial pundits talk about savings loosing out to inflation in a savings account while those same pundits talk out the other side of their mouth about how rates are so low because there is no inflation. But we don’t let this deter us.
We therefore took the opportunity of interest rates on savings to pay off all of our debt. Rather than letting savings sit in an account earning nothing, before we downsized, we used them to pay down a mortgage that was at over five percent interest, thus gaining equity so that we could eventually become mortgage free while still in our 30s. And we use our savings to remain debt free rather than paying double digit interest on credit cards. And I don’t care what any financial expert say, I’d rather have a little money in savings doing nothing rather than spend it on consumer junk I don’t need.
So in these ways, we find ways to put our money to use even when savings rates are ridiculously low.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.