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5 smart-money tips on low savings rates

Should you spend rather than save?
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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.


 

 

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