Time is money - especially when you shop for money market rates
You probably know the old saying that it is better to light a candle than to curse the darkness, but have you ever try to use it in money market rates?
Already, you may be cursing the darkness - grumbling that money market rates are so low that they are hardly worth the trouble, etc. etc. Well, unless you're incredibly rich, shopping for money market rates could give you one of the best return on your time that you have ever had.
Deflation Sweeten money market rates
First and foremost, deflation continues to make money market rates is worth more than meets the eye. How? Well, under normal circumstances, prices are rising, so whatever interest you earn on a money market account would be partially used up just to keep pace with inflation.
Deflation means prices are falling, or to think about it differently, it is negative inflation. When this happens, you not only get the full benefit of any interest you earn on your money market account, but every dollar is actually worth more than it was in the early years because prices are lower. In other words, even if you kept the same amount of money you would have more purchasing power because of deflation.
To put some numbers behind this, suppose you averaged about 1.5% of a $ 100,000 money market account in the past year. You would have earned $ 1,500 in interest. While the CPI fell by 2.1% over the same period. Because of this deflation, $ 100,000 in principal plus $ 1,500 in interest rates, which now accounts for your money market fund will now have the same purchasing power as $ 103,677 it did a year ago. So effectively, you have gained 3677% in purchasing power.
What you can do to boost money market rates
The story could be even better if you become actively involved. The difference between the lowest and highest money market rates are more than 1%. If you shop around and improve your money market rate by 1%, it is an extra $ 1,000 you would earn in a year. But it is not the end of it.
As you accumulate savings, and your interest compounds over time, the effect of a 1% difference will be magnified. MoneyRates is offering a "composite rate info graphic, which shows that under a reasonable retirement scenario, 1% difference in interest rates may result in a $ 205,000 difference in savings at retirement.
So is this the return worth your time? How long will it take to shop for the highest money market rates and changing accounts? An hour, maybe two hours at most. On a $ 100,000 account, these two hours gives you an extra $ 1,000 this year - it is $ 500 per hour. If you project that 1% difference in addition to retirement savings scenario, it is more like $ 100,000 per hour.
If you routinely earn $ 100,000 an hour, so maybe you do not need to shop for the extra 1%. For most people, although it is a very valuable returns show that shopping for money market rates can be very good.
Highest Money Market Rates
No comments:
Post a Comment