5 smart-money tips on low savings rates

Should you spend rather than save?
4 of 7
Woman pulling $50 bill from her wallet

Low interest rates can be a perverse incentive for savers to spend their nest egg rather than accept near-zero returns on their money. But Nager says this "inflation psychology" doesn't work in today's economy. Instead, savers should still forgo unnecessary spending and add to their savings.

Two arguments for saving are that deflation could make today's dollars more valuable in the future and money spent now can't be invested at a higher return tomorrow.

"You're getting a low rate, but at least you're building a savings balance for the future when rates go up," Rahn says.

Some spending still makes good financial sense, including paying down high-interest rate credit card debt, refinancing a mortgage to reduce the monthly payment or taking care of maintenance on major assets like a new roof on a house or new brakes on a car.

"If the saver is employed and his or her job seems secure, spending could be reasonable on items that are essential for health and well-being and to maintain already acquired possessions and buy a few new things occasionally. But if someone is unemployed or their job may be at risk, spending should be limited to the essentials," Rahn says.




Show Bankrate's community sharing policy
          Connect with us

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Ask Dr. Don

Quickest path toward $1 million?

Dear Dr. Don, This question involves how best to make for a better life for my family. How can I make a one-time investment of $5,000 grow into $1 million or more over 60 years? One of my broader goals is to encourage my... Read more

Partner Center

Connect with us