The monthly inflation data came out on Friday morning measuring in at 6.8%, the highest reading since 1982. This number was expected to be high but did come in even higher than anticipated. How did our financial markets respond? Well, higher of course! Would you have expected anything different given the topsy turvy world we live in? The rally remains in place as consumers and spenders are simply content to shrug it off for now. I believe there are some reasons for this, and it points to cash. To be even more specific, cash in the bank. We have all experienced that feeling of opening our monthly bank statements, expecting to feel warm and cozy knowing that the financial institutions of the world have so generously paid us $0.89 cents for the privilege of holding our money for safe keeping. Safe keeping, however, is a relative term in the current environment. What is safe anymore? Inflation rates are significantly higher than current interest rates, thus money in the bank is a higher risk today than it was a year ago. Your buying power has been reduced across the board. A consumer who paid $100 for a product last year is paying $106.80 for the same product today. But hey, here is $0.89 to make you feel good again.
The average interest rate for typical savings account is currently sitting at .06%, or $60 annually on a $100,000 deposit. If you are more adventurous, you can look beyond the typical “brick and mortar” institutions and make deposits into the online banking entities where rates run higher, usually about .50%. For many individuals the risk vs. reward scenario has been harder to digest over the last year for these simple reasons. We are not alone in this endeavor. Global cash continues to move into our markets as a safe haven. The pullback we saw recently created another window of opportunity. It’s clear that the White House is on full alert as worries about the economy and inflation are dominating the storylines and will certainly be a topic among holiday gatherings and parties. Once again, the Federal Reserve and policy decision making will be front and center. I’m guessing that their hand will be forced into a speedier tapering process while aiming to raise rates sooner rather than later. A slow, steady, and thoughtful process will be the mantra, I’m sure.
I do want to be clear though, we are absolutely advocates of emergency funds and cash on hand. We can only plan for the things we know about. It’s the unseen expenses that catch us off guard! With overall spending having been much lower over the last two years, these emergency funds have simply grown with time. This is a wonderful thing! As most of you know from our meetings and visits, determining and planning for the appropriate amount of cash on hand and cash flow in general, is a routine part of our process. While saving and investing may not serve the same purpose, they both have a place in your overall portfolio. Determining this is not a science, it’s simply sound and collaborative planning.
Have a wonderful weekend!
https://www.cnbc.com/2021/12/10/inflation-is-hitting-the-3-big-areas-of-household-budgets.html
https://www.bankrate.com/banking/savings/average-savings-interest-rates/