In the UK today I have been unable to find a savings account which is ‘clean’ and ‘no frills’ providing a return that after tax provides a return above inflation. I guess this is what happens when your Central Bank (The Bank of England) provides an Official Bank Rate to the market that is well below inflation.

Lets say you have $10,000 in cash sitting in a high yield account earning 1.5% pre tax. Then you get an offer for 2%. The different between the two is $50 FOR THE YEAR (maybe a little more if we are going to compound it monthly as most accounts would) – and this is PRETAX. Lets say it is $100,000 then the difference is only $500 PRETAX leading to a gain of $350 (assuming an effecitve tax rate of 30%, which would probably be close if you have a 100K sitting in the bank).

Yes this adds up over time, but there is no guarantee that your bank won’t drop to the rate also to meet market conditions. And like Flexo said, this doesn’t even take into account the headaches and time associated with moving $10K or $100K. I remember when I was rate chasing back in 2007 when rates were HIGH, I had like 7 1099s to keep track of.

I do chase yields, but at the moment it’s not with CDs or savings accounts. The return of capital (after inflation) is low with the traditionally “safe” investments. After all, I believe inflation was 2.7% last year (if you trust the government stat, some say it was much higher) That means if your money is earning less that that you are loosing in terms of real money.

As my ladder of CDs have matured I’m moving into other things like Lending Club, bonds (govt and corp), MLPs and stocks with dividends.

The things I choose have much higher returns but their risk (this part is the hardest and depends upon what you pick) are low.

Chasing after sub 4% returns are in general a waste of time and one of the reasons why I wrote my post on the subject:

http://investorjunkie.com/the-4-percent-rule-to-investing

As long as the FED keeps rates at zero percent and the recent FDIC rulings, expect little returns on your money. In fact, with the FDIC ruling has recently decreased rates, as I stated in a recent blog post.

More than likely you’ll loose money in real terms with these traditional safe investments.