The Savings and Interest Rate Paradox
The Federal Reserve recently announced that consumer debt declined in July for the sixth straight month. The continuing elimination of personal debt is a positive development on an individual level. Consumers are buying less of what they don’t need and saving money whenever possible.
At the same time that savings account balances are increasing throughout the country, banks are paying less interest than they have in a long time. With the proliferation of financial gurus and blogs advising people to spend less, save more, and pay credit cards off in full every month, the financial gain from saving is relatively low. For those who can get credit, these rates are low as well. It’s relatively safe to say it’s better to be a borrower than a saver at this particular time, if the borrowed money is put to good use.
This is the time to take advantage of low mortgage interest rates, for example. During a recovery following a financial meltdown, the rates will have nowhere to go but up. It may be some time before rates begin increasing, but it may be hard to go wrong with the low rates available today.
The only advantage to having money in a savings account right now — and I write this with most of my money in savings accounts right now as I have other life decisions to make before making significant changes — is to keep cash available at a moment’s notice. When the general public has once again abandoned saving in favor of buying overpriced and oversized houses, put your money in the bank. You’ll find you’ll be earning 5% to 6% with your money in no-risk, high-yield savings accounts.
Do you agree that it’s a good time to take your money out of savings accounts and put it to use?