Monday, August 08, 2005

Passbook Savings Accounts: The Financial Equivalent of the Typewriter or Rotary Phone?

Americans had a personal savings rate of zero for June 2005, one of the lowest since the Great Depression. While the personal savings rate does not include all retirement savings, there is concern that people are already spending "paper profits" from rising home prices and capital gains. Women are in particularly precarious position, with over 40% having savings of less than $500.

Some have called for campaigns to discourage debt-financed consumer spending; others have called for more savings breaks for savers. A few, in fact, have even called for a consumption-based tax system to encourage savings. While there may be merit in these approaches, one other issue must be addressed--with interest rates on savings vehicles generally under 2% and frequently less than 1% on accounts without time limits on withdrawals; it seems that most investors can get better results by investing in mutual funds or paying off high-interest credit cards.


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