The financial crisis of 2007 – 2010 has caused an influx of people to save their money rather than spend it. But the low interest rate saving accounts provided by financial institutions are also frustrating people. And economists say that those low interest rates are here to stay for remainder of the year.
So how does a person make their cash work for them? It’s not the best investment to deposit that cash into a savings account. Considering the best savings account rate, with low minimal deposit offers 1.35%, versus the rate of inflation at 2.9%. Cash is… well losing its value in that case.
Can one beat the odds?
Is it possible to find rates that will keep even with this year’s current rate of inflation? The Simple Dollar questioned if a person could make money chasing rates, by “carefully watching the yield rates on savings account, signing up for a top account, and transferring their saving to the highest-yield bank”. He found its possible but its a lot of work and maintenance to keep up with bank rates and open accounts. It also didn’t seem worth the investment to keep moving around. That is unless he found a competitive rate that had a significant rate difference of at least 3%. I agree.
The other option
Invest in Your Mortgage. Its a different way to raise your returns. With savings account interest rates so low, “Consider paying down your mortgage instead of chasing interest rates”, says Christine Benz, director of personal finance at Morningstar.com. This route is recommended if you are close to retirement, or don’t have much of a mortgage-interest deduction. And advises to do so only if you have an emergency fund in place (which we all do, right?).
To see how much you could save by paying off your mortgage early, try this calculator provided by DollarTimes.com:
I think the best scenario will depend on a person’s unique financial situation. And is a question for those people who have already used that extra cash to get out of debt. Fortunately, my husband and I participate in the Accelerated Payment Program with our Mortgage at Chase Bank (formerly Wamu) – we pay our mortgage payment weekly and is automatically withdrawn from our checking account. It saves us approximately $40,000 over the life of the home loan.
But if I was not given the option to Accelerate my mortgage payments… And if my debt was paid off, it would create a substantial balance of cash available to consider such an concept. And if my cash was not seeing optimal results in my savings account, than I think the piece of mind offered from having the mortgage paid off or lowered would be worthy.
What’s your thoughts?
What do you think about this last option? Is it better to invest in your mortgage? To use that cash to cut the total interest and term on your mortgage.