The other day, a friend commented to me that savings account interest rates where “low”. He said his solution was to empty his accounts and seek better investments. He was right — sort of. The advertised rates of savings accounts are much lower than usual.
But the real interest rate is much, much higher. Remember: we don’t have 3% inflation right now. The “real” interest rates of savings accounts are higher now than they have been in years. I’ll explain why that’s so, and what you can do about it.
How Inflation Eats Your Savings
Inflation is when your money loses its buying power. It’s like an anti-interest for your savings. Whatever you are earning from investments, inflation eats away. For some examples:
If inflation is at 3%, then a 2% savings account doesn’t compensate — you are losing 1% of your “real” money every year.
If inflation is at 4%, then a 3% savings account doesn’t compensate — you are still losing 1% of your “real” money every year.
This obviously made saving money much tougher. In the past, people often put money into savings accounts just to combat inflation. After all, it was rare to see a bank account (with some exceptions of course) top inflation.
Why Interest Rates Are Higher Than They Seem
Right now, though, we’re seeing a change. Inflation has all but stopped, at least for the short term. For the past two months inflation has been roughly 0%. That means whatever your money is earning in your bank account, you can mentally add another 3%.
So, a 2% savings account is really earning 5%.
You don’t have to get a savings account to “combat” inflation. You can actually make money with them now. It’s easier to save money now than ever before — the “real” interest rates of bank accounts is much, much higher than normal.
Back in 2007, Robert Kiyosaki was talking about the possibility of deflation, and said, “If such deflation happens, cash will become king.”
What does this mean? It means you should find the best online savings account and hook it up to your checking account to “make hay while the sun shines.”
Inflation will be back soon, and there’s no need to let the free high interest go to waste.