Updated: May 3, 2013 12:14PM
Originally published: August 7, 2001
If this week’s action in the stock market has you scared enough to consider putting some “chicken money” safely aside for just these volatile times, you’re not alone.
But when you seek safety, be sure you’re at least getting the maximum return possible without taking risks. Otherwise you may join the millions of Americans who have more than $1 trillion earning below-market rates in savings accounts.
A new study by the Consumer Federation of America says millions of banking customers are missing out on some of the $30 billion to $50 billion each year in additional interest that could have been earned on those deposits--with equal safety. That figure is based on an average rate of only 2.1 percent currently being earned on more than $1 trillion in deposits.
* Bank savings accounts. There’s nothing wrong with leaving money in the bank. Bank deposits are part of my “chicken money” category: money you can’t afford to lose. But that doesn’t mean you should lose out on earning the best insured interest rates.
There are different types of chicken money bank accounts, ranging from simple passbook savings accounts, to short-term certificates of deposit, to bank money market accounts. All are backed by the Federal Deposit Insurance Corp., but not all pay the same rates. And different banks have different interest rate offerings on each type of account, depending on their current loan demand.
Short-term interest rates on bank certificates of deposit (CDs) typically are based on the three-month U.S. government Treasury bill auction rate--currently about 6 percent. Banks and other financial institutions may offer a slightly higher rate to attract deposits in order to have money on hand when there’s a strong demand for loans.
* U.S. Treasury bills. Traditional banking institutions are not the only place for depositors who seek safety. You can actually purchase U.S. Treasury bills from the government, agreeing to accept the prevailing rate set at each weekly auction. The minimum purchase is $1,000, and bills can be purchased online at www.publicdebt.treas.gov or by calling (800) 943-6864.
There is no commission, although there is a $25 annual fee for accounts larger than $100,000. And you can arrange for the Treasury bills to be renewed automatically (rolled over) when they mature in three or six months.
Today’s 6.1 percent is almost triple the interest being earned on money left in low-interest savings accounts.
* U.S. Savings Bonds. One other chicken money investment that often is overlooked these days is Series EE U.S. Savings Bonds. Every six months, the interest rate changes, based on current Treasury bill rates. For the current six-month period ending Oct. 31, the rate is 5.73 percent. The new rate, starting Nov. 1 is expected to be slightly higher. Most older, outstanding EE bonds accrue interest at the current six-month rate.
There’s a new Savings Bond campaign being targeted at the African-American community. Acknowledging studies that have shown African Americans to be among those most likely to leave their savings in accounts that offer below-market rates, Mrs. Jesse Jackson has signed on with the U.S. Savings Bonds campaign to do a series of radio and print public service announcements. She’ll be emphasizing that savings bonds carry a market rate of interest, with the same degree of safety as bank deposits.
The Savings Bond campaign estimates that if African-American families transferred only half of their low-interest bank deposit account balances into Series EE U.S. Savings Bonds, they could earn an additional $277 million in interest every year, based on current rates.
* Money market mutual funds. Almost every major mutual fund management company offers a money market fund. Unlike bank money market deposit accounts, these money market mutual funds are not federally insured. But most fund companies do offer money market funds that purchase only U.S. government securities, thus virtually giving you the safety of government securities.
If you have one of those low-yielding savings accounts, at least pick up the phone and call your bank. Ask what they’re paying on money market deposit accounts or six-month CDs. I bet you’ll be able to at least double passbook interest rate with just a phone call. And that’s the Savage Truth. (Pass it on!)
Send questions for Terry Savage at email@example.com. Her third book, The Savage Truth on Money, recently was published by John Wiley & Sons Inc.