Where Should You Squirrel-Away Your Cash?

Savings rate is up

Thanks to the government's giant stimulus program, many Americans seem to be feeling a little better about their finances. Despite rising unemployment, personal incomes still rose 1.6 percent in May, according to the Commerce Department. But instead of heading back to the mall with that extra cash most Americans are making a beeline for the bank.

The U.S. savings rate recently reached 7 percent of disposable income – the highest it's been since early 1990s. In the short term, such penny-pinching could delay economic recovery by suppressing demand. But in the long run it's a good thing. It means families are working to reduce high debt levels, rebuild retirement accounts, and be better prepared for financial emergencies without resorting to unsecured personal loans.

Interest rates are down

Unfortunately, interest rates on most savings products are currently very low. Interest on savings accounts typically tracks the Federal Reserve's funds rate, and right now that's hovering between zero and 0.25 percent—its lowest level ever. One-year bank CDs are a slightly better option, recently yielding about 2 percent on average. Think twice, though, before committing to any period longer than that. "Short maturities give you the ability to reinvest so you can continue to stay ahead of inflation once rates and inflation perk up," says Bankrate.com's Greg McBride. ... click here to read the rest of the article titled "Where Should You Squirrel-Away Your Cash?"