It was the best of times, it was the worst of times….
I will let you complete the first part of the famous opening line from Charles Dickens’ A Tale of Two Cities. As for the second half of the line, it may be the worst time to look to interest rates for income. Partially driven by the Central Banks attempt to boost economies after 2008, and possibly partially driven by investors perceiving poor global future growth (though I hope not), “… interest rates have never been so depressed.” No easy answers for those looking for yield. Luckily (though not surprising since they are related) inflation-the general increase in prices-is subdued making the low interest rates almost bearable.
I am often asked where you can put cash for a decent yield. As inferred, I do not have a good response. Following are three suggestions, none of which will make you excited.
For some time I have used an internet bank to hold the majority of my “emergency reserve”. These accounts usually pay slightly more interest than a regular bank and allow you to set up multiple accounts which makes budgeting easier (for instance, car replacement fund, vacation fund, etc.). In addition, funds are slightly more difficult to obtain helping me save money (and I need all the help I can get!) Some example banks are:
Presently, interest rates range from 0.85% to 1.3% per annum. It can pay to shop around.
I Savings Bonds are U.S. Treasury offerings with the benefit of keeping pace with inflation. Purchase qualifications and restrictions limit desirability. The bonds cannot be sold for one year and are best kept for five to avoid penalty. The TreasuryDirect website presently lists the interest rate at 2.58% which compares favorably to the five year CD rate of 2.45% (national average.) I bonds do have fluctuating interest rates due to changes in inflation.
The bonds can be purchased through the US Treasury’s website or at your local bank.
Community Development Financial Institutions
I have written of the help you can give to those with little or no capital by saving through a community development financial institution (CDFI), and the like. You may not earn as much interest, but like the two aforementioned suggestions, the funds are insured. This money can be as closely tied to a biblical vision as possible without actually giving money away.
Isaiah calls us to make our capital available to the poor. Moving our surplus into CDFI’s is another way to share our surplus, such that all – especially the poor and those presently without – might have enough.
Matthew Colwell, Sabbath Economics: Household Practices
I have used Self-Help Credit Union in North Carolina. The stated rate for money market accounts of approximately 1.26% per annum does compare favorably to the Internet banks listed above. The knowledge of helping others might possibly take some of the sting away of low rates.
For those seeking a decent yield, indeed it can be “the worst of times”. I suggest it is a time to be patient, a time to take what yield is given, and realize it is not a time to anxiously seek higher, but riskier, yields. Though we cannot directly help implement any of the three suggestions, we stand ready to help you position this important part of your finances to work well with the whole. Please contact us if we can help.
The information given is for informational purposes only and is believed to be reliable. However, such information has not been verified by us and we do not make any representations as to its accuracy or completeness. Any statements nonfactual in nature constitute only current opinions, which are subject to change. Neither the information contained herein, nor any opinion expressed, shall be construed to be or constitute an offer to sell or a solicitation of an offer to buy securities.
All investment strategies involve risk. There is no assurance that any strategy will ensure a profit or protect against loss in a declining market. Past performance is not a guarantee of future results.