It’s easy to think of savings as just a pile of cash locked away for a rainy day. It is money that takes no risks and earns no returns, but is ready at hand when you need it. Right?
Well… almost. While stability and liquidity are critical, it is not necessarily true that your savings are doomed to just sit there without earning power. Many people do not realize this and miss out as a result.
I recently spoke with a woman who had a keen interest in investing, but nonetheless was very skittish about actually doing anything with her money. Like many Americans, her extra cash was in a simple savings account at her bank, earning a very meager 0.1%.
Although the prospect of greater returns was attractive to her, she mistakenly believed that anything better would be too risky. She did not realize, for example, that a money market account would generate a 2.2% return (actually 4.4% now) and still be just as safe as her regular old savings account.
Not that 2.2% is much of anything either, but it is a huge improvement over 0.1%. If you look beyond the old fallback of a savings account at a brick-and-mortar bank, there are a variety of options for keeping your money safe and accessible while also getting some modest growth.
Granted, these alternatives do come with risks that cash does not have. But the current climate has nonetheless made their relative security into one heck of a deal.
One reason is the proliferation of online banks and cash-management firms like Ally, SoFi, Betterment, etc. With far less overhead and a far more competition, these entities can offer higher returns than their brick-and-mortar counterparts.
But the more fundamental reason is the Fed. As it keeps cranking up interest rates, the returns on treasuries and other bonds increase as well.
This is not to say you should immediately clean out your savings at US Bank or Chase and move all that cash into a CD. I am saying you should not resign yourself to savings that just sit and collect dust. Even that part of your finances can benefit from a little strategy.