checking

Low checking returns frustrate saver

Don TaylorQuestionDear Dr. Don,
I find it ridiculous that less than 1 percent interest is called "high-interest checking." Actually, it's beyond my comprehension; you have to have hundreds of thousands to really accumulate anything. Isn't there anything around that's 8 percent to 12 percent for the little guy who has a few thousand dollars to put away and wants to see it compound to a decent amount?
-- Gerald Gripes

AnswerDear Gerald,
You have most of America feeling your pain. One of the unintended consequences of the Federal Reserve's decision to keep its targeted federal funds rate so low -- zero percent to 0.25 percent -- is that savers can't make any real money investing in insured bank deposits. This is especially painful for retirees trying to earn enough on their retirement nest egg to meet living expenses.

That said, there's a relationship between risk and return. Absent 6 percent to 8 percent annual inflation rates, the expectation that you can invest at 8 percent to 12 percent in the safety of a bank deposit isn't realistic.

You can earn more than 10 percent investing in Greek 10-year bonds. Of course, you're taking on the Euro currency risk along with the risk of the debt itself. Is that really where you want to be?

Although inflation has been relatively benign, I think a conservative investor's best option lies in inflation-indexed securities -- either Treasury Inflation-Protected Securities or Series I savings bonds. They aren't a great fit for current income, but they do a good job in protecting the purchasing power of your investment.

If you're investing in a taxable account, Series I savings bonds allow you to defer the taxes on interest earnings. However, you cannot defer taxes on TIPS held in a taxable account.

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