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Interest Rates
By Daphne | January 31, 2008
High interest rates are bad right? When you have a credit card, yes. But when you are putting money into a savings account or CD you want high rates.
HSBC, ING and other online banks have reduced their rates since the Fed cut rates. For people searching for a loan this is great news (if you have a decent credit rating). This is not so great if you want to save money. The stock market or even real estate is good for a long term investment. Though you still want to diversify your porfolio and have some cash reserves as well. If you need your money within a shorter time frame like a year or so or you are creating an emergency fund, you would want to have money in “liquid assets” - cash or a form that can be easily converted into cash.
The interest rate for saving has been decreasing but if you check around you can still find an interest rate that is above 2.7% or the rate of inflation for the last quarter.
Americans know we are not savers. Earning 3% isn’t the way to make you become one overnight either. There is hope though. Here are some alternative tips, instead of socking away all of your extra cash right now.
- Pay down high interest rate credit cards. This will definitely give you a good return on your money.
- If your mortgage rate is in the 6% range, by adding money to your mortgage principal you will increase the equity in your home.
- Add a few extra dollars to your mutual fund. In the long run every little bit helps.
- Search around for the best savings rate and put some money away. Some interest is better than no interest.
- I Series savings bonds earn 4.28% through April 2008.
You still may want to have some cash and if you have $5000 or more you can possibly find a good rate for CDs at a traditional bank. The rate may be higher and banks are eager to get business. When they have your money then they can loan it out to someone else. If you can meet the minimum, then you should try to lock in a higher yield now.
Some large banks are offering very competitive rates but you have to jump on them now and many of them require large deposits. Washington Mutual is offering an incentive to people who want to save. The best rates that are being offered are 4% APY for 6 months with a minimum deposit of $1000. For a savings account to get the best rate you will have to have another account with WAMU to get 4.25%. So you can open a free checking account with $1 and earn 4.25%.
Chase offers 2.25% for a $1000 CD for all of the terms listed on its website, but also states that rates vary by market. If you have $10000 for a 4 month term you can earn 3.5%.
The best bet would be to find a teaser rate for a bank or credit union in a standard savings account. Later when the rates increase you will have some cash that you can take out and purchase a CD. Having some cash available is always a good in case you have an emergency.
Rates are going to go down further given the 2 rate cuts by the Feds within 10 days. So if you are planning to sock away some cash for the long or short term, now is the time to do it.
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Topics: January 2008 |