- Savings accounts today offer the highest yields in 15 years
- Even so, they may not be the best way to protect your savings from inflation
(The Burning Platform)—When the Fed raises interest rates to curb inflation, ripple effects spread across the economy. Some of the impacts are negative (especially if you owe a lot of money), but others are positive for savers.
Today, let’s take a break from exploring the downsides of higher interest rates. Let’s focus on the positive.
If you’re prudent, you undoubtedly have some extra money tucked away in a savings account at a bank or credit union. Savings accounts are typically used for household emergency funds, cash set aside for short-term expenses like a big vacation, a significant home improvement (or down payment on a home) – that sort of thing.
Recently, setting aside cash in a savings account got a lot more attractive:
Not long ago, it was common to earn low returns on cash – less than 1%.
But after the Federal Reserve embarked on a series of interest rate increases to tamp down inflation, that has changed. Now, investors may get as much as 5% or more interest on their savings – the most they have been able to earn in about 15 years.
“What I hear from advisors these days is the phrase, ‘This is real money now,’” said Michael Halloran…
Just one year ago, Dr. Ron Paul calculated exactly how much the Fed’s interest rate repression was costing us. For example:
…banks are paying less than 1% APY on CDs and savings accounts, on average, while inflation is 9.1%.
What a difference a year makes!
At 5% APY (annual percentage yield, or “yield”), the most generous savings accounts are actually outperforming inflation – most recently reported at 3.7% year-over-year.
- A positive after-inflation return on your cash?
- Liquidity on demand?
- Insured by the FDIC?
- What’s not to like?
If only we could take these benefits at face value…
The drawbacks of savings accounts
Unfortunately, offering 5% APY on your savings isn’t something banks are just offering you for free. If you have an existing savings account, don’t expect a complimentary upgrade to your APY. For example, here’s the current yield on my personal savings account:
You’ll probably have to shop around, but if you do you can find an account offering 4.75%-5.25% APY. But should you? Switching banks (even opening a new savings account online) can be a hassle. Is it worth it? Well, there are two reasons banks offer high yields on savings accounts:
- To attract new customers, and entice them into opening a savings account (which, they hope, will lead to a profitable relationship)
- To attract new deposits, which they desperately need
Don’t forget, the entire banking sector is still dealing with unrealized losses on their reserves – more today than in March, when SVB and Signature banks suddenly failed:
Banks can borrow money from the Federal Reserve BTFP fund, which costs them 5.55% today. Why wouldn’t they offer savers a bit less to fill a hole on their balance sheets? From that perspective, a 5% APY savings account rate doesn’t look quite so attractive…
Even if the worst occurred – you opened a savings account with a bank that promptly collapsed – your deposit would be insured by the FDIC. Right?
…there are limits to those protections. Depositors generally have up to $250,000 of coverage per bank, per account ownership category through the FDIC.
When banking troubles cropped up earlier this year, the federal government stepped in as a backstop regardless of those limits. But savers should not count on that happening again.
Stay under those FDIC insurance limits, folks!
Fortunately, the FDIC maintains a significant deposit insurance fund (DIF). Unfortunately, the DIF has only $116 billion on-hand. That sounds like a lot, until we compare it to the $17.2 trillion currently on deposit in banks nationwide (about 40% or $7 trillion of that total is uninsured). If the deposit insurance fund is depleted, the Federal Reserve can always print more money to make up the difference. Which would cause inflation, naturally… Even in a worst-case scenario, you’d get your money back eventually, but you might need to wait on an act of Congress to make it happen.
But we’ve been starved for yield on our savings for so long, a 5% APY might be enough to encourage even the most skeptical to open up a savings account.
One more point to ponder – if we factor inflation into our calculations, how much after-inflation yield are we earning? Less than you’d think…
“Real” returns or a mirage?
The number one enemy of cash is inflation.
The phrase “real return” means what’s left over after subtracting the corrosive effects of inflation on your cash. As I said earlier, the official CPI is currently 3.7% per year.
Pause for just a moment and ask yourself whether that 3.7% increase in the cost of living accurately reflects your own expenses? For most Americans, the answer is a resounding No. That’s because CPI or “headline inflation” isn’t terribly accurate.
Absent a deeper dive into the politics of inflation calculations, consider this. If we were to use the Federal Reserve’s own price index procedures from the 1980s (before substitution hocus-pocus were allowed to corrupt the data), inflation would measure about 12.5%.
That would also mean any cash stashed in a 5% APY savings account would actually cost you 7.5% of your purchasing power…
Listen: Liquidity is great. Insurance on up to $250,000 in savings? Outstanding. Even when a bank collapses, the FDIC generally figures out a way to make insured deposits available within a day or two. Are those privileges worth a -7.5% return on investment? Maybe it’s time to consider a more inflation-resistant form of saving…
Inflation burns up dollars, but it can’t touch this
Whether you put your hard-earned cash in a savings account is totally up to you. So long as you’re aware of how much you’re really paying for liquidity and deposit insurance.
Savings accounts aren’t the only solution, though.
Consider the benefits of physical gold and silver. They’re not only resistant to inflation, they’re also historical safe-haven assets. Instead of a misleading APY, physical precious metals offer you long-term stability that can’t be inflated away. Gold and silver are almost as liquid as cash in the bank. And your physical precious metals are your property (unlike a bank deposit, which is a bank liability or IOU to you, the customer). Gold and silver cannot default, cannot go bankrupt. Ever.
Savings accounts are supposed to offer low risk and low reward. Right now, it seems to me they offer a combination of low risk and guaranteed loss of purchasing power instead.
There are two ways to own gold and silver. You can purchase them and have them delivered to your home. Or, you can use the retirement savings funds you’ve already set aside for your future to open a Precious Metals IRA.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
