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Saving Anything Is Better Than Zero

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Gone are the days of double-digit interest rates on savings accounts.

Gone, too, are the late 90’s and early 2000’s when you could earn up to 7% interest.

Now, we are looking at historically low interest rates.

Very few financial institutions pay even .25% on deposit accounts.

Certificates of deposit pay only slightly more.

And that’s with depositing a large sum or being locked in for a term of 5 years.

So what are savers to do?

Stuff their cash in coffee cans and bury them in the backyard?

Keep cash hordes in a shoe box in the closet?

Regardless of the interest rate you may be getting on your savings anything is better than zero as a rate of return.

Obviously, with interest rates as low as they are, the temptation is there to talk yourself out of keeping your money in a liquid, easily accessible cash account.

The inclination may be to keep just enough money in a checking account and opt for other vehicles such as investment accounts, peer-to-peer lending accounts, or even to use the cash to pay off bills since the return will be greater compared to parking the remainder of your money in a non- or low-interest paying account.

The fact of the matter is that no financial plan is complete without liquid accounts that are easy to access at any given moment.

The most popular forms of such an account are emergency funds and specific-needs funds (ie: holiday or vacation accounts), which are tools that every single person should have.
But, why is it so important to put the money in an account that earns such a paltry return?

Why shouldn’t I just keep the money in a sock in the back of my closet since I can access that at any time I may need?

The answer is very simple, and it’s the same reason you should never opt out of and employer-matched retirement account: free money.

Since you need to have a liquid account, whatever the reason, it makes absolutely no sense in the world to have the money just sitting there.

If you are going to have money in a deposit account, you might as well have that money working for you, making the most of each dime you can.

The best thing you can do for yourself is to ensure that you are getting the most out of every dollar you have.

So what if you aren’t going to get rich from a savings account, at least you will be getting something in return, even if it means having a little extra in the event of an emergency, or the ability to get a few extra souvenirs on that vacation.

Institutions such as Ally Bank, and Discover Bank all offer low-minimum options that link to your current checking account and make transferring funds as easy as a few clicks of your mouse.

For those who worry about the safety of online banks, most are simply extensions of existing financial institutions that have been around for decades, if not more than a century.

There really are no more excuses not to be taking advantage of them.

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Suba
9 years ago

And it is generally safe. No worries losing money in a flood/fire/theft. That itself will be stressful and losing the money saved exactly for these type of emergencies will be even more devastating. Also some CDs like the Ally bank 5 year CD pays more and if you break the CD before 5 years you will lose only 3 months interest. That works out to be much better than the 0.1% big banks are giving.

Eric J. Nisall
Eric J. Nisall
9 years ago
Reply to  Suba

You said it Suba, there’s absolutely no security in holding cash physically. Plus, some CDs, like the Ally Raise Your Rate Cd, allow you to bump the rate during the term if interest rates get raised. And, if you do need cash out a CD early, you at least get to take the early withdrawal penalty against the earned income.

Financial Samurai
9 years ago

But zero is better than losing money in the markets!

Eric J. Nisall
Eric J. Nisall
9 years ago

You won’t get any argument from me on that one, Sam!

Onecentatatime
9 years ago

Eric my checking accounts are interest payee. As you live in south Florida, you can open a interest payee account at Bank of Atlantic. Enjoyed the post

Eric J. Nisall
Eric J. Nisall
9 years ago
Reply to  Onecentatatime

There are lots of checking accounts that pay interest, SB, but in order to get anything that competes with online bank accounts like Ally, Discover Bank or Everbank you need to keep a hefty amount in there at all times, which isn’t easy for many people. Bank Atlantic is a convenient place, but I can’t have an account there; I did at one point, but they closed it on me because I had too many electronic transactions.

Daniel
9 years ago

I think you should have some money in a checking account but in this current economy, it is a far better decision to pay down your debt.

Eric J. Nisall
Eric J. Nisall
9 years ago
Reply to  Daniel

Either that or like some are suggesting (depending on age), bumping up investment funds to take advantage of the market and time. At the same time, I think it’s a huge mistake to ignore the liquid accounts entirely.

LaTisha Styles
9 years ago

Anything is better than zero but hopefully inflation won’t eat away at your savings. I think paying down debt is good right now also.

Eric J. Nisall
Eric J. Nisall
9 years ago
Reply to  LaTisha Styles

I agree, but I would also advise someone not to get too crazy and abandon saving all together. It is still a vital part of any financial plan.

Thefrugaltoad
Thefrugaltoad
9 years ago

I was going to say that Money Market accounts pay a much higher rate but I was shocked to see that Vanguard Prime Money Market Fund is only averaging .06%!  I agree with the others about building a n emergency savings first and then paying down debt if at all possible.

Eric J. Nisall
Eric J. Nisall
9 years ago
Reply to  Thefrugaltoad

Yeah, that’s a pretty sad rate for a historically decent source of interest. Even still, there are plenty of options to earns some decent interest while staying liquid for emergency funds and short-term needs.