I’ve been hearing a lot lately on the woeful return for savings products which are safe, but offer low interest rates. It generates the question for many on whether it’s worth the effort to put money away in these types of accounts.

My take on it is we really do need to continue to put our money into savings. No matter what we’re getting on those accounts, whether savings accounts, CDs, money market accounts or Treasuries, we’re getting the market rate, and whatever that rate is, depending on doing a little research on who is offering the best rates, is all we’re going to get until the market changes.

The problem with some people raising these questions is it could influence someone to foolishly quit saving and waiting around for better interest rates to return.

Why that doesn’t work is the money you have for savings today needs to be put away while you have it. What’s the alternative? Spending it? That makes no sense at all. You don’t spend money you’ll never have returned to you just because interest rates aren’t what you think they should be. Yet that’s just what some people are advocating.

What needs to be put in perspective, is savings rates are never going to be high and will never be the key investment to build your wealth with. Savings is to build up a protective moat for you so when unexpected difficult economic times come, you have cash in place to tide you over while you make decisions and take steps concerning what to do about it.

It’s more about keeping your money safe than it is increasing it. This doesn’t mean we shouldn’t shop around for the best returns we can get, just that we have to understand what savings is. If we have high expectations that aren’t realistic, we could use that as an excuse to not put money away. That would be a huge mistake.

For a number of reasons the Federal Reserve isn’t going to raise interest rates any time soon, and so those waiting around to put money away for safe keeping and in case of emergency will find themselves unprepared if things continue on a difficult economic road (which is expected), with no money to tide them through.

Savings aren’t really to make you a lot of money, it’s to build up a protective money stash in order to give you a chance to work things out if you’re fired, laid off, or some other economic emergency happens which you would need money for in order to buy you time.

In the end, that’s the real purpose of savings, to buy you enough time to right the circumstances without devastating you’re entire life and causing you to lose everything. Interest rates are only secondary to the issue, while having some savings set aside for emergency is the primary reason for having an account.

Don’t let low interest rates keep you from continuing to save. It really has nothing to do with the overall purpose of having a savings account of some type, as I’ve shown you here.

Tags: saving money, saving strategies, savings plan

This entry was posted on Saturday, November 28th, 2009 at 7:00 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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