Say No to Low Interest Savings and High Inflation

Wouldn't you love to see a 1% APY savings account in today's market? For comparison on today, 5/20/08, Wachovia's "most popular" Premium Savings account-according to Wachovia's website-has a current interest rate of 0.55% APY at the top tier. Does that sound low? That is probably because it is. When the inflation rate for April is an estimated 3.75% (being extremely generous there) you're actually losing value on your money.

Rate of inflation can sometimes be difficult to grasp. Essentially it's a rise in prices. For example a meal that costs $10.00 costs $10.375 when inflation hits using the 3.75% rate of inflation. Without getting a pay raise to match inflation you start to lose value on your money too. Most if not all workers get a pay raise every year. If your raise percentage doesn't match the inflation percentage for the year, then you've lost money and are essentially working for less.

Whenever your pay raise comes around it's a wise decision to check the percentage. Receiving a raise of $0.20 per hour on top of your existing $9.00 an hour salary is a raise of 2.2%. Using a rate of inflation at 3.75% you should have received a raise of $0.34 just to receive the same value of money for this year as you did last year. A lot of people might think companies/managers won't knowingly give insufficient raises to their employees, but we all know it happens.

My suggestion if you ever find yourself receiving a sub-inflation raise-after running the numbers of course-is to bring the subject up to your boss. Explain that the rate of your raise is less than inflation and you demand more. While you received a raise it wasn't sufficient; the company is now spending less money on you this year than it did last year. It's in all essence a profit for them.

Now then this same concept can be applied to savings. If any of your savings accounts are earning an interest rate lower than the rate of inflation, then you have a serious problem. Yes, you may be earning extra money because of interest but you're still losing value on your money. That 0.55% APY from earlier is losing you 3.2% value on your money per year it's in there. There's no reason to stay with your bank under such terms.

Fortunately we all have options. I've had success going to my bank explaining the case as I suggested earlier with an employer. Instead of threatening to quit, though, you threaten to take your money to another institution. Don't be fooled by their "set rates" either.

Fixed rates can be complete rubbish. Often times you'll find terms in your contract about the bank being able to change your fixed rate. Sometimes you can see this done to people, but the bank needs to give you a notice and warning first. Since they can change the rate to their benefit they can also change the rate to your benefit too. Explain this little bit to them and you might find yourself at a higher fixed interest rate.

So why, if people lose value on their money with low interest yielding accounts, do consumers continue to piss away their money? That's easy: security. We should all know that high risk equals high reward; conversely low risk equals low reward. Lower interest rates are generally linked to their security. Oddly enough savings accounts are probably the lowest risk investment you can make (besides going into higher education of course). However, it's possible to do enough research allowing you to significantly lower the risk of higher return investments to make them viable.

Regardless, I urge you to fight against interest rates lower than inflation. You're doing nothing but losing value on your money. Do some research on other investments and try your best to get a return value as high as you can. Today's market is all or nothing.