WHEN WILL RATES STOP DROPPING?

by Matt B

As I have mentioned countless times, I keep my savings at ING DIRECT. Over the past few months, I have slowly been watching my interest rate dropping, dropping, dropping. It seems as though every time I log in there, rates have changed. Not long ago, I received a healthy 3%. It beat most rates in the country. The astounding thing to me is that it still beats most after dropping so many times.

Oct 9, 2008
From 3% apy to 2.75%

Dec 30, 2008
From 2.75% apy to 2.5%

Jan 20, 2009
From 2.5% apy to 2.4%

Feb 3, 2009
From 2.4% apy to 2.2%

Feb 18, 2009
From 2.2% apy to 1.85%

Mar 3, 2009
From 1.85% apy to 1.638%

Mar 21, 2009
From 1.638%apy to 1.490%

Well, at least it has yet to change thus far today. It is very frustrating to watch your savings rate drop so low, especially when you take inflation into account. Judging by history alone, one can only assume that the rate of inflation is at least 2%. At that rate, I am actually LOSING money in my “savings” account.

I am not a paranoid person, and I am definitely not crazy enough to believe that all of the banks are going to collapse and we will be left with nothing at all. If you do buy into that mindset, stashing cash in your mattress is just as futile if you really give it any thought. What I mean is that if the time comes when all of the banks are closed and everyone in the US is left holding the bag after the crisis, that cash under your mattress is going to be worthless anyway. (Unless you can sew it into a beautiful gown.)

Essentially, when you are saving at these rates, you are not saving at all. Unless miraculously, inflation disappears. So, where can you actually get a return on your cash? Well, the stock market is out. Some of the largest companies in the US and worldwide are on the brink of bankruptcy and the last thing that you will want to do is give them money only to see them fail. The best answer I can think of is real estate. I personally do not own a home or any property, but this is the best market most of us will see in our lifetime, and for those who do have savings or investment capital would be smart to buy land or homes. Foreclosure rates are the second highest in American history, and this presents an amazing investment opportunity for those who can afford it.

There is nothing wrong with stashing cash away for a rainy day, and there is also nothing wrong with saving for something specific. Just make sure that you are not getting swindled in the process. Always look for the best risk/return ratio possible for as long as the cash must remain liquid. This will secure your capital until it is ready to be utilized for your original intention.

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