Clark Howard's Tips

June 20, 2008

There's something really interesting going on with savings rates right now.

With the inflation rate hovering between 4% and 5%, it's almost impossible not to fall behind with your savings.

Like everyone else, the banks are suffering because of defaults on all kinds of loans. So they're doing 1 of 2 things. They're either offering lower rates on CDs and savings to conserve their dwindling funds, or they're offering higher rates to attract big chunks of money.

That may sound obvious, but it really means that now more than ever it pays to shop around. Visit BankRate.com to compare rates on CDs and savings.

First off, you should only save money that you may need access to in the next 5 years; money that you know you don't need to touch anytime soon should be invested, and that would warrant a whole different discussion.

When it comes to savings, Clark loves the idea of laddering. For example, you might opt for taking your money and splitting it among multiple lengths of CDs -- such as a 1-year CD; a 2-year CD; a 3-year CD; a 4-year CD; and a 5-year CD. That way you can benefit from varying interest rates over the next few years.

5-year CD rates are once again getting back up close to 5%. E-Loan is offering 4.85% right now with a $10K minimum deposit. For 1-year CDs, E-Loan is right around 4%. (Editor's note: Interest rates accurate as of 06/20/08.)

Finally, beware that brokerage houses have been quietly reducing the interest they pay on your cash by as much as 90%! You may need to manually move your money to a higher-earning account, such as an online bank that pays around 3.5% on savings. Brokerage houses are no longer necessarily a safe harbor for your cash.

Consumer advice courtesy of