The financial collapse that began in 2008 stimulated Americans to begin saving more, with national saving rates going up significantly over the last year. However, this increase in savings also coincided with a dramatic drop in interest rates, meaning that most interest-bearing savings instruments are now earning minimal returns. The low rates of interest from most traditional savings accounts have led many people to ask where they should put their savings in order to get a decent return and what sort of savings strategy they should adopt.

Forget about the rate

Basically all of the primary savings instruments – bank savings accounts, certificates of deposit, money market funds, and so on – are offering minimum interest rates for the time being, making any choice about as good as the other. Instead of focusing on current interest rates, consider the safety of your savings first and foremost. That is, deposit your money in a FDIC-insured account, regardless of the current interest rate. Therefore, you won’t lose anything beyond devaluation from inflation.

Interest rates are likely to increase

Despite the effect it may have on efforts to mitigate the recession, the fact of the matter is that the Federal Reserve is going to have to increase interest rates at some point to offset the decline of the dollar and to encourage increased foreign investment. A lot of the world is in recovery, and investment opportunities abroad are tempting investors away from opportunities in the United States. In order to remain competitive and balance out the effects of declining dollar value, the Federal Reserve has little choice in the matter.

What an interest rate hike will mean

For people in debt, an increase in the interest rate will have a detrimental effect as the interest levied on the debt will also go up; however, for savers the current low rates of return should also rise. Once interest rates begin to increase, it will be prudent for savers to shop around for better deals. For now, avoid putting savings in any account that will limit your access. If the interest rate goes up over the next few months, then there will be much better opportunities than anything available now.

The continuing credit crunch

Although the worst effects of the credit crunch seem to be over, the banks are still wary of lending to anyone without a good credit score and sound financial situation. This mean not only that are many banks are being cautious about lending to private customers, but that they are also being careful about lending to each other. Eventually, many banks, especially local banks with sizable commercial real estate holdings, will be working hard to attract cash investors. Looking to put savings into these banks might be worth the effort.

Basic advice for right now

Right now you are not likely to find any secure savings options that are paying decent interest, but this is bound to change in the foreseeable future. Therefore, the best idea is to keep your savings liquid and do not lock them into anything. Once interest rates go up, many more opportunities will present themselves and at that point it would be worth the effort to shop around for the best rates you can find. Furthermore, since interest rates are bound to go up, variable debts will go up as well, meaning you might want to use savings to pay it down.