Savers Losing Out in the Current Economy
September 12, 2008 by Miranda Marquit
Filed under Finance
Are you into saving money? And I mean really saving it. You know, by setting it aside in some sort of an account (be it investment or high yield savings or CD). Do you do that? I do, and I really felt the truth behind a recent BusinessWeek article about how savers are basically getting the shaft. Due to the very real effects of inflation, many savers are finding that their gains are being eaten away. And with the bear market, some are concerned that investment accounts are tanking.
All of this is somewhat excerbated by the recent attempts to shore up the economy by rewarding those who haven’t been quite as responsible, reports BusinessWeek:
All of which might be tolerable to the lonely and beleaguered saver if he weren’t taunted daily by lopsidedly pro-spending, pro-creditor news stories. Forget about moral hazard. Forget about rewarding profligacy. Washington is hell bent on putting a floor beneath the housing market. And subtlety got vetoed out of the process.
Some of the stories that have come recently include these gems:
- There has been an increase in Chapter 7 bankruptcy filings.
- Bear Stearns was “saved” with government help.
- Fannie and Freddie have been authorized to increase the mortgage amounts they can accept.
- The FDIC could lower mortgage rates for delinquent borrowers at IndyMac.
- Worries abound that Lehman may be the next bank that is “too big to fail.”
- Some banks are halting foreclosures.
- Congress is considering allowing the DAP loophole to remain open for a while.
- Another round of stimulus checks is being considered.
On top of this, there is no real effort by our leaders to encourage us to save. Quite the opposite. Everything is aimed at keeping consumerism going, and helping debt remain a cornerstone of the economy.
And this not good news for savers, since such policies usually mean interest rate cuts to keep economic growth “sustainable” (which also contributes to increased inflation). And those cuts directly affect the rates of return you receive on your cash savings — money market accounts, high yield savings accounts and CDs. So, if you are a saver, your money probably isn’t working as hard for you as you would like.
On the other hand, if you are trying to pay off debt, now is the time to do it. With interest rates so low, more of your credit card payment can go to the principal. If you have credit card debt, perhaps it is time to shift focus a bit more toward dramatically paying down that debt while the interest rates are more in your favor.
Are you a saver? Do you feel as though you are getting railed?
I’m an in-betweener.
My husband and I both worked from home for three years of our marriage. He just started a full-time out of the house job in January, I started writing in April, and our last two months have been super-profitable and show no signs of slowing.
So we’re paying off debt (our wedding gift to each other was cutting up credit cards so our debt is student loans, old bills, and medical debt) as fast as possible.
We’re using the debt snowball and should be down to student loans, one debt, and the mortgage by November.
I’m okay with what’s going on now because my bank savings account has been at .02% since I opened the account. I don’t think of saving as a strategy to increase wealth.
After we have an emergency fund that I don’t expect to grow, I plan on creating my own mutual fund by holding a diversified stock portfolio. I started at http://vse.marketwatch.com this month to test my knowledge of the long-term stock market. That way I have a mutual fund without the fees.
I’m sorry you’re not doing as well. We were poor while the boom happened, and now we’re doing great while everyone else is floundering (not everyone, you’re good, but you know what I mean) so I can’t complain. It’s working out beautifully…for me.
I’m sorry savers are getting the shaft. Is it because they are too cautious with their investments? Savings is to hold money, not to make money, right?
Thanks for sharing, Jennifer!
Good for you getting out of debt. I’m glad that things are looking up for you.
I really can’t complain much. I’m doing okay. It’s just more frustration that the government is so focused on keeping the status quo with the economy that it is losing sight of encouraging behaviors that, in the long run, would increase the average net worth and wealth of most people.
Savings are meant to maintain AGAINST INFLATION. Right now, with inflation what it is, and interest rates what they are, that’s not happening.
On another note: You need a new savings account! Open a high yield. They are at around 3% to 3.5% right now. There is no reason to be using a traditional low ball savings account — even for your emergency fund.
I’m a saver. The low rates hurt. At least CD rates have gone up a little. How is it that encouraging saving isn’t a good thing? Oh yeah, that means not spending everything you have on the newest stuff!
I should have specified. Right now we only have an emergency account of $1k to get us through paying off debt.
Half of it lives in the Bank of America account and the other half (plus an extra $200/month) goes into an ING account at 3%
The problem is if something happens and we really need that money, 3-5 business days from ING is not acceptable, so some has to sit in BoA at the crappy interest rate.
Or so I think, anyway LOL I’m no expert!
I see, Jennifer. That’s a pretty good plan.
Thanks, FFB, for weighing in. I am really rather annoyed that our leaders continue to encourage a culture in which we are supposed to be in debt. It’s “good for the economy” in its current form if most of us are in debt just enough so that we keep making payments and saving very little without actually going under.
I am a saver in that I don’t spend what I don’t need to spend. With the way the economy is right now, my goal is to make enough money to pay my bills, eat, and put gas in my car – not learn about all the kinds of savings/investment plans out there. I just don’t have the income for that (and I’m more than a bit jaded with our economy).
I look forward to the day when I’m financially stable enough to be able to deduct money from my paychecks and put that money in some kind of savings plan (not so much to increase wealth, but rather to have an emergency fund, like the commenter above said). Will it ever come? I don’t know. If it doesn’t, it won’t be for lack of trying on my part, ha.
Thanks for your thoughts, Alicia! Trying to save money is a great goal, and one that eventually leads to financial freedom. Unfortunately, in this economy with inflation what it is (especially with food and fuel), that goal can also be difficult to meet.
An emergency fund is good, but most of the reason I save is to also build up a good amount of money for retirement later, so that I have something to live on.
Ah, yes! Retirement is definitely another concern. If I continue freelance writing and editing forever, that is definitely something I’ll need to look into.
Unfortunately, since we have a fiat currency that’s being expanded at a rate of 15% a month in “national debt” to the “Federal” Reserve, our money becomes progressively less valuable. It’s only a matter of time before we have hyper-inflation like post-war Germany and our money is replaced by Ameros which will be just as bad.
While the international bankers continue to gain, people like you and me with $15,000 in our savings accounts lose, because all our hard work is gradually being erased.
I don’t believe in needless debt. Putting your money into real property like a house, a car, a printing press, gold bullion, or something you need is a great idea, and this is a great time to do it. That means BUYING those items; not renting or leasing. Mortgages are okay if they’re necessary. But saving the money for retirement, if retirement is more than ten years off, is a bad idea because by then our money will be valueless.
The real way to plan for retirement is to build passive streams of income like royalties or websites with affiliate advertising, which can continue on their own when you stop working. Saving lots of money now and then making no new money after retirement just won’t work.
Thanks for sharing your thoughts, Richard! I agree that not having any more income when you are retired won’t work. And, of course, I agree whole-heartedly about debt. We should avoid it wherever possible.
Planning is important, and it is vital to facing the future.