Your BEST investment could be your savings account!
So, we know that in a recession, you are likely to lose value in stocks, and may not recover that value for a very long time. We also know that interest rates are near historic lows, which makes money markets practically worthless. The low interest rates can go up far more than they can go down, and you should know that bond values go down as interest rates ascend. What's left? Real estate? It's also clear that we are nowhere near the bottom of housing prices. Could a low-risk, reasonable-return investment be right under your nose?
Savings accounts are back!
A remarkable thing happened, even as interest rates fell to almost unimaginably low levels. Online savings accounts were born. The first of these was evidenced by those millions of orange ads you may have seen on the Internet, for ING Direct. While walk-in banks were paying (and continue to) nearly 0% ING was offering 4% or more. The only misgiving I had was that ING is not a U.S. firm, so I wasn't totally sure how safe my money would be. It seemed like a reasonable question, until the first U.S. bank created an online savings account paying real interest - Emigrant Direct. I signed up as soon as I saw it. Now I could actually get 5%, yes five percent, on my savings, just like in the good old days, and with basically zero risk. The only issue was that it could take a day or two to transfer funds between my local bank and EmigrantDirect.
And then...it got even better! Many of the mainstream banks started offering online savings accounts with meaningful interest rates. My own bank, Washington Mutual, started a 5.00% APY online savings account, and I signed up right away. Several other national banks now offer this service, while most banks continue to use your cash while returning next-to-nothing to you. With the Fed's January 2008 reduction of prime rates by 1.25%, this APY dropped to 4.00%. But this is risk-free, with zero expenses, and the full protection of the FDIC (up to $100,000).
Do this before you go offline tonight!
Five percent may not seem like much, but if you keep only $1,000 in savings,
you are literally throwing away $50.00 every year.
With WAMU, at least, I can move any portion of that into my checking account
within seconds, not days. There is no longer any
reason to lose out on this interest. If you have your savings
anywhere else, you owe it to yourself to open one of
these online accounts tonight! If at all possible, use
the same bank as you use for direct deposit, checking, etc.
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