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Be Wise With Money

4 Saving Strategies in a Low Interest Rate Market

save with low interest rates

Today's historically low interest rates are the epitome of the good news/bad news adage. The good news is you can get low mortgage and other loan rates. The bad news is you earn only pennies on your savings. May as well keep your money under the mattress, right? Not so fast!

By being overly conservative, you could be doing more harm than good over the long haul. The simple reason is inflation. Inflation can erode any savings value if your money is just sitting in the bank.

These low savings rates are simply not keeping up with the 3% inflation rate. It’s like buying a candy bar today for $1.25 and finding that it costs $1.30 next month due to inflation.

The marketplace is not going to change any time soon, so it is important to continue to save. To help you manage the current low rates and still have growth, consider putting your savings into four buckets based on your goals. The caveat is you have to be willing to take on some risk. It's the ol' risk versus reward conundrum.

The four savings buckets are:

1. Need it now (within one year) – Pay yourself first and build up your emergency fund. This is usually very liquid; you can get at it quickly. You won’t earn much interest, but you have quick access for those times of need. Make sure this bucket is filled first. This would be savings and money market accounts.

2. Need it soon (One to five years) –This money will need to take on some risk to grow. A portion in short-term bonds or CDs (Certificate of Deposit) provides some yield or growth on your money and not a lot of risk.

3. Need it later (Five to 10 years) –The savings here will need to take on some stock market risk to grow. Invest based on your risk tolerance level so you can sleep at night. Typical goals for this bucket are college funding or a larger personal goal. You give up instant access to gain some growth. You also have time to wait out market fluctuations and cycles.

4. Long way off (more than 10 years) – This bucket should focus on growth potential, mainly a mix of stocks. The idea is to automatically save regularly and leave the accounts on auto pilot. Let the portfolio managers do their job to grow your money. Retirement savings would go in this bucket.

With savings growth, there is no such thing as a “FREE” lunch since you have associated risk with each option. Talk to your financial representative to find out the best savings options for your risk tolerance level and goals.

Keep on saving – it’s guaranteed the market will change!

What you can do:

  • Figure out your risk tolerance level.
  • Review your savings buckets to make sure they support your goals.
  • Understand how your savings can potentially grow to meet your needs.
  • Meet with your financial representative to get any questions answered and make adjustments as needed.

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