As The Washington Post’s Danielle Douglas reported this week: “The savings rate, which was at 1 percent in 2005, generally fluctuated between 5 percent and 6 percent during the recent recession. This year it has hovered around 4 percent, still above historical norms.”
But squirreling your money into low-interest-paying savings accounts could hurt you in the long run. People who are stashing their cash that way are missing out on the highs of the stock market and a recovering real estate sector, experts say.
“The rate on the 10-year Treasury bond has been well under 2 percent, and banks typically offer less than 1 percent in interest on savings accounts, not nearly enough to keep up with inflation, let alone build enough wealth for a child’s college education or retirement,” Douglas points out.
But, understandably, people don’t have the stomach to take the risk involved in investing.
“People have lost their appetite for risk,” says Karen Dynan, co-director of the economic studies program at the Brookings Institution. “They’ve been burned by the stock market. They’ve suffered through capital losses on their homes. And so they’re hunkering down in what they view as the safest place to store money.”
Douglas asks a great question: “Who could really blame Americans for their trepidation?”
“Many watched what little wealth they created through homeownership or retirement plans evaporate. That kind of devastation is enough to sour most people on investing, or at least make them more conservative in their choices,” she writes.
What do you think? This week’s Color of Money question: Are you afraid of the risk in investing? Send your responses to email@example.com. Be sure to include your full name, city and state. Put “Squirreling Away Your Savings” in the subject line.
Savers vs. Spenders
Although the savings rate is up, there are still plenty of people who are living above their means,
How do we know? They are spending more money than they have in their bank accounts, according to a new study from bank research firm Moebs Services.
The Moebs report found that in the past year bank account holders were hit with $31.5 billion in overdraft fees, up from $30.8 billion, with a 10 percent rise in the past nine months, reports Stephen Gandel of fortune.com.
Live Chat Today
Join me at noon ET for a live online discussion with Andrea Pomerantz Lustig, author of
“How to Look Expensive: A Beauty Editor’s Secrets to Getting Gorgeous without Breaking the Bank.” Lustig’s book was the September Color of Money Book Club pick.
Be sure to send your questions in early or read the transcript later.
Beware of Scammers
Distressed homeowners often have a lot to stress about.
Not only are they fighting to save their homes from foreclosure but they also have to watch out for scammers who are looking to take what little money they have left.