Recession: Increase in Personal Savings

One of the more positive results of the current recession — at least from a personal finance standpoint — is the new emphasis on personal savings. Indeed, the personal savings rate has increased since the beginning of the recession. This is a positive change that indicates that economic worries are starting to prompt changes in personal finance habits. This is not a bad thing.

Where should you put those savings?

As more people cut back on the nonessentials and start focusing more of the household budget on savings, there are questions about the best places for that extra cash. Here are some suggestions as to where you can put your savings. Because the mattress doesn’t offer you an annual yield:

• High yield savings account. This is the most basic level of savings (forget the “traditional” accounts with a yield of less than 1%). You can usually find these online. However, with recent interest rate cuts, you are likely to get something in the 2% – 3% range.
• Local rewards checking accounts. One of the growing trends in local and regional banking is the rewards checking account. Even though you have to keep a minimum, the yields are better than the savings account: 3% to 6% on average.
• CD ladder. Many people are using the recession as a chance to save what they can and start a CD ladder. Depending on the amount of the CD, and its term, you can get rates ranging, on average, from 3% to 7%.
• Bonds. Some people are looking at bonds right now. Government and corporate debt (more government debt lately) is considered relatively “safe”, and bond investing is considered a cornerstone of capital preservation. However, yields are extremely low — effectively 0% on some Treasuries — in some cases, ranging from below 1% to 5%, depending on the bonds in question. You can find higher yields on bonds with greater risks.
• P2P lending. This has increased in popularity, since you can get interest payments of 5% to 12% or more on loans you give out to your peers. But there are attendant risks to lending to “ordinary” folks.
• Stocks. Stop laughing. Or staring at the screen pop-eyed. Many people are using this time to increase their stock investments for bargain prices. Chances are that the stock market will recover, and then your numerous bargain stocks have the potential to yield very good returns indeed. You just have to have the stomach for it. Oh, and pick fundamentally strong companies that are likely to survive the recession.

Where are you putting your savings?

image credit: US government