What to do with ‘chicken money’ amid inflation
It’s not fair that savers are losing money by trying to keep their money safe. With inflation running at 7% and the average money market deposit account paying only 0.5%, savers are losing out to inflation in a big way.
At only 3% inflation, the buying power of your money is cut in half in about 25 years!
Rising rates in the trading markets are making headlines — even ahead of the Fed’s promise to raise rates several times this coming year. Fears of inflation make bond buyers demand a higher yield to offset the impact of inflation. But if you’re sitting around waiting for savings rates to rise, it’s likely to be a longer wait. Banks have little incentive to attract more deposits by raising rates for savers. There is still plenty of money (liquidity) around in the financial marketplace. And the banks like the idea of making mortgage loans at 3.75%, while paying depositors just pennies on the dollar. That leads to bank profits.
So, if you have some “chicken money” (money you can’t afford to lose), is this the time to throw caution to the winds and seek higher yields outside insured deposits? As always, the answer depends on your tolerance for risk. Ask yourself whether the pain of losses is worth the slightly higher yields you might get by taking more risk.
But if you’re watching pennies, there are ways to earn a bit more or pay a bit less.
Avoiding fees
A new survey by MagnifyMoney.com says that banks collected $114 billion more in fees than they paid out in interest on checking accounts and money market deposit accounts over the past decade. (That doesn’t include interest on CDs.)
But these days bank fees are coming down, under pressure from government regulators and competition from online insured deposit accounts. Capital One and Ally Bank recently said they will eliminate overdraft fees. JPMorgan Chase now gives customers 24 hours to repair overdrafts and avoid fees.
Bank of America announced it would no longer charge for bounced checks and is reducing overdraft fees from $35 to $10. (NSF, or non-sufficient funds, overdrafts typically come when automated payments for rent or utilities are taken out before a paycheck is deposited.) B of A said its move would cut its overdraft fee income by 97% from a decade ago.
It’s time to check your own account and see what fees you are paying — and how you might switch to save on fees. But beware; there are trade-offs. You need to compare these frequently hidden traps:
ATM fees. If the bank doesn’t have its own ATMs in your area, will they reimburse all fees if you use another bank’s ATM?
Monthly service charges or annual account fees.
Minimum balance requirements.
Overdraft or NSF fees.
Expensive charges for printing paper checks if you still use them.
Wire transfer fees. Some banks charge fees on incoming wired deposits, even if it is your paycheck.
The best checking account for you will depend on how you use it. At DepositAccounts. com, you can use the free “checking finder” to input your own typical usage data and search results for online banks or banks in your area that could save you money.