As the final blow of this "annus horribilis" (as Queen Elizabeth referred to 1992 in her Christmas speech that year), my bank cut my savings interest rate by one-third. Horribilis. No warning, no explanation. I had an inkling that something was afoot because I check my accounts online daily, including the accumulating monthly interest on my savings. Mid-month the interest amount needle got stuck. I thought it was a glitch. Oh, how wrong I was.
I opened the account in 2014 (almost 7 years ago) and the interest rate has remained constant until this month. I add to my account on a monthly basis, and let the interest remain in the account.
Granted, savings account interest rates are LOW, mere peanuts. I consolidated my online money market accounts into a savings account at the bank where I've been a checking customer since 1981 because I wanted F.D.I.C. protection, and brick and mortar access to my money at a branch that's less than 5 minutes away from where I live. Fine and good until now.
Could I do better elsewhere? The yield chase was on.
First, my bank. For a face-to-face (masks firmly in place) chat with a customer service rep. No real explanation for the rate cut. I figured it had to do with the Fed, but didn't say that. I asked about cd's. Not good. Interest rates on cd's less than 5 years are less than the recently cut rate on my savings.
I went online to Bankrate and other online sources. Yes, I could get more elsewhere, but I'd lose brick and mortar access and the convenience of instant online transfers between my current bank accounts. The miniscule difference in interest rates wasn't enough to tempt me to take action.
I remembered Bernie Madoff and Allen Stanford and the lures they cast for victims for their ponzi schemes. Stanford once said, "Just give 'em two percent more." (Back when interest rates were much higher.) Look what happened: Madoff and Stanford both in prison, their customers broke and bereft.
Finally, I consulted the Oracle of Omaha. Here's what Warren Buffett said to CNBC on February 24, 2020:
"Billionaire Warren Buffett told CNBC on Monday that investors should not reach for yield beyond their risk-tolerance, even with interest rates so low and stocks seemingly like the only place to get a return.
“If you need to get 3% and you can only get 1%, the answer is ... you should always adapt your consumption to your income,” the Berkshire Hathaway chairman and CEO said on “Squawk Box.”
“Reaching for yield is really stupid. But it is very human,” he said, delivering sobering advice to folks near or in retirement. “People say, ’Well, I saved all my life and I can only get 1%, what to do I do? You learn to live on 1%, unfortunately.”
“You don’t go and listen to some salesman come and tell you, ’I’ve got you some magic way to get you 5%,” he added."
For the full article go here:
I like to think I'm smart enough to take good advice when offered. I'll trust Warren Buffett's advice and adjust my consumption to my income, like Buffett does with his morning McDonald's breakfast.*
I'll stay put at my current bank. I can live with that.
Wishing all a Happy and Prosperous New Year.
Penny Pincher
*See my earlier post: What I Learned from Warren Buffett - February, 2017
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