Guaranteed to lose spending power

With an unpredictable stock market, savers are looking for safe havens for their money. The issue of maintaining an account balance is particularly important to retirees, but as the Fed has cut the interest rate, yields on checking accounts, savings accounts, money markets, and certificates of deposit have suffered.

Banks are now using "guaranteed yields" to lure in customers, but even those aren't all that good with a few unusual exceptions. These "teaser rates" are usually only for a limited time, typically a year or less. Who knew that banks would offer a savings account rate of 3.5% and consider it a really good deal? A tiny number of banks are offering rates in the neighborhood of 4% or 5%, but those are typically very short term.

The special deals come with conditions. Often they require a minimum amount to be on deposit with the bank, or there is a maximum that a customer is able to deposit in one of the ultra-high interest accounts. If you use a product like a CD, your money is somewhat tied up for a while.Here's the problem I see with accounts getting a typical return around 3%: Your money is barely keeping up with inflation. And for many, their real costs are increasing faster than the reported inflation figures. That means consumers are losing value if they put their money in a traditional bank account.

What's a consumer to do? The interest rates are a big problem, especially for retirees. They want their money to be safe, which is what a bank represents. But they shouldn't expect that their spending power will go down the longer they let the money sit at the bank. The only real solution, as I see it, is to put only a small portion of your savings at a bank. This should be the money you want to protect the most, and have easy access to if you need it.

The rest should be carefully divided between other investments, of course balancing risk and reward. Retirees probably should be looking at bond funds for a little better return with not a lot of risk. This is where a good investment adviser comes in, one who hopefully can help you plan a conservative strategy that will protect your money but help you keep up with rising costs.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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