For most of the 20th century interest rates in the USA moved in a range that would swing like a monetary pendulum with a center of gravity around 10 percent. Many people born during the baby boomer generation, for example, lived through decades when financial planners advised that borrowing money for anything in the single digits was practically free money. At the same time, of course, money stashed in savings instruments and accounts had the potential to earn returns in the double digits – and it often did without much effort or strategizing.
But that’s ancient history. Fed rates have been just a fraction above zero for years, and that has led to anemic returns for the small minority of consumers who were actually savers. A few years ago – right before the credit markets crashed – the majority of American households spent slightly more money each month than they made. Such habits are unsustainable, and now people are scrambling to figure out how to get low interest loans while earning a robust return on any cash they have stashed away at the bank.
As mentioned before, the lowest interest rates available on certificates of deposit are generally found online. You can get rates of around .50% APY to 2.00% APY, depending upon how much you are willing keep locked up on deposit, through banks like Aurora and ING Direct. One percent or more sounds great to most consumers, but in the long run it amounts to about a penny on every dollar. It is interesting to note that the list of online banks that deliver pretty good rates include American Express and Discover Bank – which are affiliated with the same respective financial services brands that bring us those notably customer-friendly AMEX and Discover credit cards. So the distinctions between traditional bank accounts and credit card accounts are not as mutually exclusive as they once were.
If you carry plastic, for example, you might be able to tie your card account to an interest-bearing account where money from such things as cash-back rewards programs can be automatically deposited whenever eligible funds are available to you. Many programs offer at least 1% percent back on every purchase, with as much as three, five, or even ten percent cash back on special categories of purchases.
Meanwhile there are lots of attractive introductory zero percent interest offers out there, and many of them offer zero percent for an entire year. Plus, if you are a credit cardholder who likes to save and you are disciplined enough to pay your balance off by the due date each month, you’ll never have to pay any interest to a card company anyway. So for the first year you have one of these cards if you need to carry a balance you can essentially borrow at zero percent. All the while you are earning cash back on every purchase that is comparable to or even higher than the top rates currently offered on bank CD’s.
What does it all mean? If you study the small print of your credit card offers and cardholder agreements and then do a side-by-side comparison to opportunities your bank offers to save or invest, you may find out that the smartest solution is in the plastic in your pocket. Anytime you can earn a solid return on your money and get a line of credit without having to pay any interest, common sense says that is a really good deal – no matter what century it happens to be.
To learn more about cards that pay you cash back for purchases, those that offer low interest rate balance transfers, and to read expert side-by-side comparisons of each card to learn the specific features, fees, or perks, just visit CompareCards.com. The entire site is chock full of helpful, updated credit card information and best of all the resources are all free for you to use.
Published or updated May 25, 2012.