The 4 best savings rates for the financially bearish – What options do conservative savers have besides stuffing cash into the mattress?
Savings rates have been incredibly low for the past decade. Many growing into this current economy must think that banks are simply expensive mattresses where you keep your money. There are options out there for stashing your emergency fund or simply for keeping some of your savings money powder dry. There are many options out there but it must seem incredibly confusing to people simply looking for the best yield in a very challenging market. The stock market may be up but banks are still paying out close to zero percent on savings accounts. Where can bearish savers place their money and actually sleep at night without worrying too deeply? As we all know that with risk comes reward so do not expect big yields here but then again, you shouldn’t be chasing massive yields with your emergency funds in the first place.
1. U.S. Treasury I-Bonds – One of the better options is through U.S. Treasury I-Bonds. These are savings bonds that are indexed to inflation and will never pay less than zero. The rate adjusted bi-annually and fluctuates with the CPI. They also pay a fixed rate component but that has been zero since 2010. The current rate is 1.53 percent. The benefit of these is that you can purchase them through Treasury Direct and link them up to your traditional checking account. You can purchase up to $10,000 a year per Social Security number. In this low yield environment, these are not a bad deal. If these are redeemed within the first five years of purchase, you will forfeit 3-months of interest. Not a bad trade off for the rate.
2. Treasury Inflation Protect Securities (TIPS) – These investments seek to invest in US government debt through inflation-indexed bonds. Most have dollar-weighted average maturities between 7 to 20 years. This is another good option for the bearish investor. For example, compare the overall stock market versus a TIPS fund over the last 10 years:
For a very low volatility, this is another good place to stash some cash.
3. Non-traditional banks like ING, Ally, Everbank – If you look at brick and mortar type big banks you will be lucky to get anything higher than zero percent on your savings account. By the time you get a certain fee on something, your little interest will be wiped away into thin air. Some of the more non-traditional banks like ING, Ally, and Everbank offer better rates because of smaller storefront operations. Current rates are as follows:
4. CDs – Certificate of Deposits act like a forced savings account. You purchase a CD for a set timeframe and will get a guaranteed return over this period. Many of the one year CD rates are yielding 1 percent so this isn’t a get rich quick spot either. This is simply a place to store your money and earn a bit more than your regular savings account. Some will benefit from CD laddering and have 1, 3, and 5 year maturities hitting at various times.
It isn’t hard to beat the market when the savings rates at most big banks is zero percent. Throw in the added fees some will hit you with and you will experience negative growth rates. I prefer things like I-Bonds and TIPS for emergency funds because in reality, with inflation, even the 1 percent rate is making you fall further behind. The above are simply a sample of safe savings vehicles for those that are financially bearish.
The City – San Francisco remains most overpriced region in California. Bay Area home values down 41 percent from May 2006 peak. 10 years to get to the peak 1996 to 2006. 10 years to bottom out 2006 to 2016.
People seem to think that simply having a good tech industry and a trendy scene warrants an entire region with many millions of people bidding on extremely old properties for whatever a bank will lend them. I don’t say this with enthusiasm or any kind of bravado but the Bay Area has the most overpriced real estate in the entire state of California. I’m not sure what it is but this region is completely disconnected from reality. Incomes be damned, people are eager to pay an arm and a leg for a glorified hut. Yet here is the odd twist to the story; home prices in the Bay Area derived from the Case Shiller San Francisco MSA data have fallen by 41 percent from the peak in 2006. Does this sound like a boomtown in The City?
A bubble has popped in The City
You don’t have to be a charting genius to see that home prices have completely collapsed since the peak in 2006:
From 1996 to 2006 home prices in San Francisco only knew to do one thing and that was to move up. Yet that has now massively reversed. It doesn’t help that California has a somewhat inconsistent budget process and incredibly low property tax rates. This is a separate debate but home prices in the state were encouraged to go up with no regard to income thanks to funny mortgages that belong in some kind of B-rated movie about financial swindles. The obvious outcome was a bubble and the burst is what we are living in.
If we pull the data out, we find home prices moving lower and now stalling out. The question is, will we see a second round lower?
Think prices aren’t out of sync? Take a look at this 833 square foot condo:
The current sales price is $849,000. When I see things like this it is hard to see any other path than seeing prices move even lower. I took a look at income data for this zip code and it is $170,000. No way can $170,000 a year pay for this place. More to the point, why would anyone pay this much for 833 square feet?
I know some buy into the high price real estate world of California but the statistics show a very different picture and pattern emerging. Sure San Francisco and the surrounding area are excellent but prices are simply out of line with what people can generate. To say that incomes don’t matter when it comes to real estate prices is like saying the engine of a car doesn’t matter because the tires are inflated. Incomes absolutely matter. Going into massive debt for something you cannot afford typically does not end well. People over estimate how much households make in the Bay Area:
These figures flat out do not support current prices. A low interest rate is merely a teaser to do something inane like taking on $20,000 in credit card debt just because you can get 12 months at zero percent.
The City is bound for a second go around in the California correction. 10 years to get to the bubble peak, might take 10 years to reach the bottom (i.e., 2016). Garbage in, garbage out.
How many credit cards should I have? Credit card statistics. The number of credit cards you should have.
How many credit cards should I have? Is this a question you find yourself asking? I’m not sure if most people have an internal barometer of how many credit cards they should carry. They don’t exactly teach this in high school or in economics 101. The fact of the matter is Americans love their credit cards. The typical credit card holder has 3.5 credit cards based on data from the Federal Reserve. The typical credit card debt per household is $15,956. The most common credit cards out there are Visa, MasterCard, American Express and Discover. Paying with plastic is a good way to build your credit history but you should always be ready to pay off your balance each month. This is really the slippery slope of credit card debt. This is likely going against the human nature of people given the typical household with credit cards carries a stunning $16,000 in credit card debt. That is they are not paying off their balances. It is important you understand credit cards before asking how many credit cards I should have.
The satisfaction with various credit cards
Which cards have the highest satisfaction with customers? Based on a JD Power survey the rankings are as follows:
Source: JD Power
American Express consistently ranks amongst the top of the heap in customer satisfaction ratings. It is important to understand these distinctions because many people will build lifelong relationships with their credit card companies. Given the 3.5 average of cards Americans have, you will have options in choosing which card makes the most sense for you. You should look at fees, annual interest rates, and also amenities that they provide such as rewards. You can use cards to pay for various things like gas, food, vacations, or even paying for your taxes which are coming around the corner.
How many credit cards should I have then?
Just because people carry an average of 3.5 cards doesn’t meant that you should. The average credit card interest rate is 14.96 percent (as of March 2012). This is very high given current savings accounts are giving basically zero percent. The number of cards you have is going to be dependent on the following:
-1. What is your household income?
-2. Do you have a business?
-3. Ability to pay off balances each month
First, you need to understand how much leverage your household can take on with credit cards. The market for credit debt has tightened up recently given the current recession. When you use your credit card you are basically making a promise to pay for an item today with money earned tomorrow. Since many credit cards offer a 30 day grace period, you are basically using “free” money if you pay off your credit card balance every month.
Second, people may need separate credit cards if they run their own business for example. You might want to keep your personal and business spending separate. Having more than one credit card here is useful.
Finally, you need to know that you will be able to pay off your credit card debt each month. If you don’t you will be paying high interest and your initial purchase will be much more expensive than you think. The number of credit cards you should have varies. I don’t see why someone would need more than five credit cards for example yet I know of people with over 15! I think it is safe to say that they have way too many. In other cases some people have no credit cards and that may be too little given that our economy, for better or worse is driven by credit and credit histories. So how many credit cards should you have? The answer as most things in life depends on your unique circumstances.