Myles of Investments

Read about my successes and failures. Learn from my experiences and gain insight without losing any cash!!!

Lesson: Catching a Falling Knife
Lesson: Currency Exchange
Lesson: Mutual Fund
Lesson: Paid to Wait
Lesson: Pricing in a Downturn

This is where you’ll find find my Blog. I will comment on the latest news relating to investing, real estate, and the financial markets.

High Interest Savings Accounts – You Can do Better with Less Risk

High interest savings accounts are one of the worst investments you can make. You will typically be losing ground, as inflation will be destroying any gains you make while depleting your existing buying power.

High interest savings accounts do not really pay high interest, even at three to four percent, since there are so many other (and better) alternatives that will initially pay more. The immediate benchmark should be government bonds, because these are the safest investment you can make. If they are yielding around the same percentage, why not put your money in the government as opposed to a bank? Also, have a look at corporate bonds, and think blue chip – I bet there are bonds for brands that have been around for decades that yield more than a high interest savings account. Do you think any of the cola manufacturers in the world will go belly up any time soon? Probably not.

Now add in stock performance to the mix, and where are you relative to high interest savings accounts? Look at buying an index fund, which is very similar to buying the stock market, and eliminates much of the risk of putting all of your eggs in one stock. Through history the stock market typically grows around seven percent per year, and you should average this through the life of your holdings if you are in the market for a moderate amount of time. Can you find a high interest savings account that pays this percentage, and is only as risky as the entire market economy? Let me know if you do, and I would love to look at that high interest savings account.

You also have to consider inflation, as it can creep up to about five percent per year depending on market conditions. From my viewpoint this means that if you add five percent to a stock market average of seven percent, you really need to achieve over twelve percent return just to break even with the standard of living that you are currently maintaining. If you settle for 2% growth, you are basically saying you are okay with losing ten percent of your money each year. The safer bet is to look at index funds or other alternatives to boost your yearly interest.

If you then want to consider your money safe, you need to be learning and actively investing in things that will at least keep pace with the world around you. High interest savings accounts, as a form of investment, hurt the holder, as you are taking a few steps forward, while the world around you is taking twelve. This will, in short order leave you trailing the masses and wondering why you never seem to have enough money, and why the dollar that you saved in the high interest savings account, no longer buys as much as it used to.