Are You Missing Out On Interest Returns?

Are You Missing Out On Interest Returns?
Theodora Lee Joseph, CFA

about 1 year ago2 mins

While a lot of investors are chasing the next big ten-bagger stock, there’s easier money to be made much closer home. Your savings may not look as sexy as your investments, but with central banks globally hiking interest rates to levels not seen in the past decade, it’s a smart time to shop around for a bank that pays you well. After all, every bit of returns counts, especially against the backdrop of a recession.

While all this may seem like common sense, the reality is far from simple. Cash is a commodity but consumers are slow to shift their savings into higher-paying accounts for many reasons. They get familiar with their own banks, they see creating new accounts as a hassle, and sometimes they’re just not aware of the money they’re leaving on the table – and as a result, they lose out on the additional interest they could be making. Case in point: US savers missed out on $42 billion in interest (red bars) in the third quarter alone because they failed to take advantage of higher-yielding accounts. And it could be costing you too.

The higher central banks hike, the larger the opportunity cost of leaving your savings in low-yielding accounts. Depending on your liquidity needs, you could consider locking your cash in for six months, or 12 months, or longer in cash deposits (CDs). If you require more flexibility in withdrawals, consider higher-yielding savings accounts or money market accounts. Even if you still prefer your traditional savings account, it’s worth shopping around for a bank that pays you well. If you live in the US, or in the UK, there are sites that allow you to do so easily. Whatever route you choose, make sure your account has the protection of any applicable deposit insurance guaranteed by the relevant authorities.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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