Not too long ago, Fed Chair Ben Bernanke said that he expects a policy of low interest rates to persist. As a result, it looks like savers won’t get a break for a while. Making the most of your cash continues to be difficult with even high yield savings accounts offering a yield of right around 1%.
If you are concerned about making the most of your cash in 2012, you will have some limited options — and you may have to get creative.
Yes, there are still financial institutions offering interest bearing checking accounts. However, you will normally have to fulfill certain requirements, such as a minimum balance and/or a minimum number of debit card transactions. However, if you move your emergency fund or other long-term savings account to one of these accounts, you might be able to find an account with a rate above 2%. That beats just about any high yield savings account, and comes close to beating many 5-year CD rates.
Rewards Credit Cards
Sometimes, making the most of your cash isn’t about keeping your cash in a bank. Occasionally, it’s about the way it moves through your personal economy. Rewards credit cards can be a way to get real value from the way you use your money. Using rewards can help you achieve a decent return.
In order for it to work, though, you can’t carry a balance. And it works best with a cash back card. Figure out how much you spend each month on expenses, and then use your credit card to make all those purchases. At the end of the month, you can take your money (which you hopefully keep in the highest yielding account you can find) and pay off the balance. That way you grow your rewards balance — or build up your cash back — quickly.
In a low-rate environment, getting more free perks and cash back can be just as important as finding high yields. Indeed, if you can make $10 or $20 a month in cash back, you will be getting a much better return than you would receive for keeping a few thousand in a savings account (although you can do that, too, if you plan your credit card spending carefully).
While getting into debt isn’t something many of us think of as “smart,” there are ways to use a low rate environment to your advantage — especially if you want to improve your cash flow. If you have been thinking of buying a home or a car, low interest rates can help you get more for your money. If you have a down payment, you can do even better. Plus, many credit cards are offering great sign up offers like a 0% balance transfer or cash bonuses. Apply for a new credit card, and you could wind up with as much as $200 in cash.
You don’t need new credit, though, to borrow smart. You can improve your cash flow by refinancing your current obligations. You can refinance your car loan or your mortgage, and pay less each month. Or, you could refinance to a shorter term. Make a higher payment, and get out of the loan sooner, and owe less in the long run.
In order to borrow smart, though, you need to have good credit. You will only get the best deals if your credit score is high.
What do you think? How will you use your money in 2012?