Online Investing Hacks

Screen Savings Rates

Interest rates are near historic lows, so retirees and other savers who depend on income from their savings and investments are in a fix. The same interest-rate cuts that have fueled the home buying and refinancing boom are a disaster for savings-minded folks. Financial firms only raise their rates so far above the market averages to capture business, but even a fraction of a percent can help. In the past, finding better interest rates was a real chore, so many people simply took what their bank offered. Now, you can use online screening tools to find savings options that fit your timeframe at the highest possible interest rate.

In October of 2000, the average interest rate on money market accounts was running a bit over 4 percent. By early 2004, rates dipped so low that the rate on a typical money market account was below 1 percent. Table 1-1 shows how much this drop costs the typical saver.

Table 1-1. Impact of interest rates on money market returns

Initial deposit	How long	Contributions	Interest rate	Ending balance
$10,000	2 years	$100 per month	1.25%	$12,681.02
$10,000	2 years	$100 per month	4%	$13,325.43
$100,000	2 years	None	1.25%	$102,515.62
$100,000	2 years	None	4%	$108,160.00

Because compounding is so important to savers, higher interest rates increase the interest paid more dramatically over time than lower interest rates. You can see the difference in interest from a $10,000 nest egg, but the impact is far more dramatic on ...