Banking, Personal Finance 

What Can Savers Do in This Low Rate Environment?

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Right now, the Fed Funds Rate is targeted at between 0% and 0.25%. For savers, this means dismal yields on their cash products. Whether you are looking at online savings accounts or 5-year CDs, the result can be disheartening. Even though government figures insist that inflation is not a problem, the reality is that food and energy prices – which are more likely to impact you day to day – are rising and the low savings yields can’t keep pace.

And there doesn’t seem to be an end in site. The Fed recently implemented Operation Twist. The Fed says that it isn’t a quantitative easing attempt, and that QE3 is by no means assured, but it is still an economic stimulus move meant to lower interest rates. Indeed, Ben Bernanke has said that he expects low rates to continue into 2013. Savers have a long wait ahead.

Strategies for Increasing Your Yield

Since you have a long wait ahead of you, it’s a good idea to change your expectations for what you are likely to receive. But that doesn’t mean you can’t keep looking for better yields. You do have some options when it comes to improving your earnings on your cash. It just might mean taking on a little risk. Here are some of your options:

  • Rewards checking: Right now, rewards checking accounts are offering better yields than high yield savings accounts and even many 5-year CDs. However, you have to be able to meet certain requirements. You might need to use your debit card a certain number of times, and you might need to maintain a minimum balance – and there is likely to be a cap on the maximum balance that earns the higher rate. But it can still provide a good alternative.
  • Bonds: If you don’t mind some risk, you can invest in bonds. Treasury bonds are considered quite safe. While yields have been dropping, many of these bonds still offer better returns than cash. You can invest in I-bonds or TIPS and keep pace with inflation. You might also consider municipal bonds, which, although they come with higher risk, provide the potential for better earnings.
  • Stocks: Now might be the time look for solid stocks that can provide decent returns and weather the current situation. Stocks certainly have the potential to provide greater yields than cash. Plus, if you choose value stocks, or choose dividend stocks, you are choosing stocks considered to be less risky. Dividend stocks can even provide you with regular income that can more than make up for the low yields being paid on cash.

You can, of course, shop around for the best CD rates and best savings accounts rates. Even the best rates, though, are currently sub-par. You might be better off trying something else to earn a little more. If you are serious about increasing your yield, and earning a bit more, you will have to move beyond the more traditional cash products favored by savers. If you are choosy about your investments, you can limit some of your risk. Otherwise, if you stick with CDs and savings accounts, you might find that your earnings are less than desirable.

{ 10 comments, please add your thoughts now! }

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10 Responses to “What Can Savers Do in This Low Rate Environment?”

  1. Alex says:

    Evantage Bank says about their rewards checking “Sorry! Sold out”
    AmericaNetBank – sold out
    WICHITA REWARDS CHECKING account is still showing as open

    It looks like reward checking accounts industry is essentially dead or close to it?

  2. Ken says:

    Reward checking isn’t dead. There are still 100’s of reward checking accounts around the nation. However, rates have fallen, and most are now only local deals.

  3. Zanne says:

    I would suggest the idea of prepaying ongoing expenses, if a discount is offered to you. As an example, my cable/internet company allows me to pay by the year, and in exchange, gives me a month’s service for free. Sure, I have handed over a year’s bill in lump, but I can’t get a return on the money in savings equal to a month’s free service. By my calculations, that’s about an 8% return, and doesn’t take any savings into account for the opportunity cost for me not having to pay the bill monthly or the actual cost of the checks, envies, and stamps. It seems like a good deal to me. (I pay my savings account monthly instead of the cable company, so that I have the funds to take advantage of the offer.)

    • Shirley says:

      Thank you… that is a very good tip and I am going to look into similar possibilities for us.

      If you can make this annual payment with a rewards CC, and then pay off that rather than the cable/internet bill with the savings, you can be even further ahead. 🙂

  4. Instead of CDs, which are locking up money at a sub-optimal rate right now, I would suggest investing some money in P2P sites (Prosper, Lending Club, etc.). Even if you choose the “safest” loans, you’ll still be making 5-6%, which is a lot better than the CD rates I’ve been seeing.

  5. eric says:

    Definitely an issue for me this year. Where to park the cash? I have to keep it liquid and safe so I’ve been stuck in rewards checking accounts although the rates keep dropping. I guess that’s the trade off but it doesn’t make me any less disappointed.

  6. billsnider says:

    Be careful with money markets. Check to see if they are FDIC insured. If not, GET OUT FAST.

    Bill Snider

  7. As for stocks, in addition to dividend paying stocks I think it’s high time for value stocks. Or better put, under-valued stocks. They generally have both lower risk and higher potential return. It’s a way of stacking the deck in the investors favor, especially during volatile markets such as the one we now find ourselves in.

    Value stocks afford the ability to wait out a falling market since they’ve usually been ingnored by the mainstream. They’re not so easy to find, but well worth the extr effort if you can.

  8. Scott says:

    Intermediate term investment grade corporate bonds (VCIT) are my safe investment for the medium term. The FED will keep rates low for years, while everyone jumps through hoops trying to find the highest yielding checking/savings/CD/money market accounts offering, what, 1-2 percent.
    I still keep 5-10 percent of my money in cash for opportunities.

  9. adam_carolla_fan says:

    like others, i’m at a total impasse about what to do as far as investments, but then again, i’ve never been much of an investor (mostly CDs). i’m tired of chasing better rates, and “better” is certainly a subjective term. right now, cash is king, so i’m just saving here and there. also, i say “no, thank you” when asked if i wanna jumbo size my value meals, so that helps.

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