I was very embarrassed this past Saturday when my husband turned to me, from his conversation with his brother and aunt, and asked me what the current yield is for one of our money market funds. It was embarrassing because it had been at least three months since I looked at what the yield for this account was. Needless to say, I spent a few minutes the next day checking out the money market funds where our emergency funds are saved.
We currently have our emergency fund (really all six month’s worth of expenses) saved in two different accounts. One is with Vanguard and the other one is with Fidelity. Even though we have truly commingled finances in this household for some reason we have our cash savings split into his and her accounts. I guess it can be seen as another way to diversify, not only holding our money in one investment company but in two.
The real reason was that initially we wanted our savings to be split into a money market fund and CDs. At the time this decision was made CDs offered by Fidelity where slightly better than those offered by Vanguard. But as six months went by and I got tired of having to make a decision every three months as to where to move the funds that were coming due from the CDs I decided to switch them all to a money market fund with Fidelity.
As I was looking what yield we were getting on both, I was not surprised by the unpleasant results. The Vanguard Fund is yielding 2.96% and the Fidelity one 2.66%. With core inflation rates well above these marks I am not happy at all that I am losing money every time the clock ticks and I don’t take action. But what action can I take? Switch to CDs? I just looked into these and a 3-month CD is getting 3.2%, a 6-month one 3.4% and the year long one is offering 3.55%. All of these are better, but just marginally, than the money market funds we are in right now. Is the difference significant enough for us to give up some of the accessibility to our funds the money market funds offer?
I didn’t hesitate twice to contact Vanguard CS to see if maybe I was better off investing in an inflation protected security. But the CS person was quick to let me know that these are two completely different types of funds and that even when the IPS seeks to protect our capital from inflation it is riskier than a MMF.
So, I am asking: Has anyone found a decent option to protect cash savings from rising inflation?
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cash savings?
Good question. My ING savings account keeps getting a lower and lower interest rate, too. 4 times since the beginning of the year!
My only thought would be to ladder your cd’s if cd’s are where you want to go. For example, put $1000 in a one-year cd now, in two months, put another $1000 in a one-year cd, etc. That way, if interest rates get better, you can take advantage of better rates. If they get worse, at least some of your money is locked at the higher rate
I have mine split between a zero interest account (just a few hundred) and a couple months expenses in an ING account. It seems just as soon as I find an account I like, the rate or promo is over.
We are not at this stage yet…. but I am watching the comments with interest.
It seems like there’s no satisfactory answer to this. I guess everyone is losing money to inflation. I am switching some of our savings to CDs on Monday.
What do you think of our country going back to the gold standard?
We moved half of our emergency savings last week to a 6 month CD at Countrywide bank that was yielding 4.05% when we opened it. I checked and their rates today for 3,6, and 9 month CDs are 3.25% Their 12 month is 4.20% APY. Our high-yield savings account was only earning 2.45%APY. Hope that helps!
Mrs Mecomber I think one of the problems with switching back to the gold standard is that there’s a lot of speculation on that commodity right now. Lots of people seeking to protect their assets from inflation by holding this. It can lead to a lot of swings in the value of gold.
I also thinking this may impact the way the federal reserve controls the supply of money in the market. I am not an expert so I can’t say very much.