Most women confident saving money, but where it’s kept lags inflation
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When it comes to non-retirement savings, most women (71%) say they feel confident in setting aside cash. new Vanguard research shows.
But experts say many may also want to consider where they keep that money.
Nearly half (51%) of women keep their nonretirement funds either in traditional checking or savings accounts or in physical cash, according to Vanguard’s nationally representative survey of 1,007 adult women conducted in April.
Almost half (46%) of cash savers keep most of that money in accounts earning less than 3%, which currently lags the rate of inflation. The other 26% don’t know how much interest rate they are earning.
“A lot of times people don’t get money in the right place because of inertia,” said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida, and member of the CNBC Council of Financial Advisors.
“They can keep the money in a checking account and then transfer the money to a savings account at the same time. [bank]but it pays low interest,” McClanahan said.
Inflation remains at 3.3 percent annually
consumer price indexInflation, an important measure of inflation, increased by 3.3% in March compared to the previous year, largely due to the rise in energy prices due to the impact of the Iran War, which started on February 28. The annual inflation rate rose from 2.4% in February.
Although inflation is a normal part of the economy and is currently well below the pandemic-era peak of 9.1% in June 2022, the current rate exceeds the Federal Reserve’s 2% annual target.
In general, money sitting in an account that earns less than the inflation rate loses its purchasing power over time. While cash provides liquidity, where you store it can make a meaningful difference in whether it helps you combat the impact of inflation.
“Cash has never kept pace with purchasing power,” McClanahan said. “What you want to do is make sure you’re earning the highest interest rate for those types of interest rates. [savings]”
You shouldn’t try to take too much risk on short-term funds (money you may need in the next few years).
High-yield savings, money market accounts are options
For example, McClanahan said high-yield savings accounts are an option.
Some of the highest-yielding accounts are currently paying around 4% per year. Latest data from Bankrate. This compares to a national average savings account annual return of 0.59%.
Instead of using a traditional savings account at a bank where you also have a checking account, “you need to take the extra step and find a high-yield savings account that pays higher interest and link it to your checking account,” McClanahan said.
Additionally, some money market accounts pay interest comparable to high-yield savings accounts, said Lazetta Rainey Braxton, CFP, founder and chief executive of virtual firm The Real Wealth Coterie. He is also a member of the CNBC Council of Financial Advisors.
Money market accounts also often come with check-writing ability or debit card access. However, they may require a higher minimum balance than savings accounts.
Other safe options may be less liquid
Beyond these accounts, you can also consider: U.S. Treasury securities as well as certificates of deposit or CDs if you don’t need to have the money on hand right away.
“You have more liquidity in money markets and high-yield savings accounts,” Braxton said. “But some people make trade-offs to not have immediate access to get additional returns.”
CDs have a specific term, ranging from a few months to five or more years. At the end of the maturity, your bank returns your principal plus the interest it guarantees. But this makes them less liquid: If you withdraw money early, you usually pay a penalty for doing so.
While the average national annual yield on one-year CDs is 1.92%, you can also find ones paying 4% or more, according to Bankrate.
Treasury bonds are also a relatively safe place to put cash, but liquidity and interest payments vary. For example, currently the three-month Treasury yield is around 3.6%.
The U.S. Treasury also issues savings bonds. For example, Series I Bonds purchased from May 1 through October 31 will pay 4.26%. This interest rate is higher than the 4.03% yield valid until April 30. The rate paid is adjusted every six months by the Treasury Department and is tied to inflation.
However, when Buy I bondsYou won’t be able to access the money for at least a year, and if you cash out before five years, you’ll lose three months’ interest. For electronic purchases, the minimum purchase amount is $25 and the maximum amount is $10,000 per person per calendar year. You should also purchase them through . Treasury DirectThis means creating an account on that website.
