| Doris Dobkins is the publisher of $mart Money New$. You can subscribe by
visiting her web site at
CreativeFinances.com |
No, that's not a misprint. Even
though falling interest rates are good when you want to get a loan,
they are bad for people with savings accounts.
In this economy your best investment,
the best place to put your money is into paying off debts. Think of
it as investing in your debt because that is exactly what you are
doing.
If you put $1,000 into a bank savings
account earning 2%, at the end of a year you will have $1,020.
If you carry a $1,000 balance on a
credit card with a 19% interest rate, and you pay the minimum
monthly payments, at the end of one year you will have paid $190 in
interest.
If you get $1,000 in a tax refund,
small inheritance or from somewhere else you now have a choice to
make. You can earn 20 bucks in a savings account or save $190 by
paying off that credit card. Keep in mind that your 20 bucks is
taxable income so you'll be left with $15 or so after taxes.
 Do you need a savings account for
emergencies? That savings account may be causing those emergencies!
Think about it this way...
If you are earning money in a savings
account at 2% and paying anything over 2% on your debts you are
sliding backwards financially and you'll never get ahead. It's basic
mathematics.
If you earn 20 bucks for five years
in your savings account you'll have $100. If you pay $190 in
interest on your $1,000 credit card after five years you will have
paid $950 in interest charges.
In other words you have wasted, lost,
burned or flushed $850 by having a savings account. ($950 - $100 =
$850) OUCH!
What can you do? Pay off that credit
card and use that as your emergency fund. It's not the best way to
do it but it's better than earning 2% and paying anything over 2%.
So, while the stock market is on its
roller coaster and the economy is challenged, your best investment,
bar none, is your debts! Get them paid off!
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