Talk about money: Savings accounts don’t necessarily pay off

Once upon a time, honest, hardworking Americans who didn’t want to gamble with their money could put it in savings or money market accounts and collect a decent amount of interest. When they retired, the interest helped them pay their bills.
Those days are gone.
“For the next two years, anyway,” said John Duffy, a retired stockbroker who owned All-American Brokers in downtown Santa Cruz from 1985 to 1995.
He was referring to the Federal Reserve’s pronouncement Aug. 9 that the central bank would hold short-term interest rates at close to zero until mid-2013.
The result: Savers get nothing. For example, if you put $10,000 into a three-month Treasury bill at the current yield of 0.015 percent, at maturity you will collect 38 cents in interest — almost enough to buy a Popsicle. Yippee!
So, what’s a saver to do? Two choices:
– You can leave your money in savings, earning zero, and wait ’til interest rates go up, which they eventually will, maybe in a couple of years, as Duffy suggests.
– Or you can give up on the idea that you can’t take any risk with your money.
Some savers want absolute safety in the form of a monthly statement that shows their $10,000 never drops in value.
But that safety is an illusion. Sure, $10,000 in a savings account or T-bill will still be $10,000 in two years, but will it buy what $10,000 buys today? Not likely. If prices for things like food, energy and insurance continue to go higher, the buying power of $10,000 will continue to shrink.
To get a decent return, savers need to realize that everything involves some kind of risk. Even if you don’t actually lose money, you may lose buying power. If you put all of your nest egg in accounts earning close to zero, over the long run you will lose.
“The only safe haven is diversification,” said Duffy, 73.
You’re likely better off with your money spread over various investments, he said, noting that dividend-paying stocks are one area to consider.
Indeed, many blue chip stocks pay dividends that represent a higher yield than long-term Treasury bonds. Last month, the yield on the 30 stocks of the Dow Jones Industrial Average rose to 2.8 percent, while the yield on the 10-year Treasury bond fell to about 2 percent, according to Bloomberg Businessweek.
To understand how unusual that is, we have to go back to when Duffy was a young man. Prior to 1958, stocks had always paid higher yields than long-term Treasury bonds. But that year, the dividend yield on stocks fell below the yield on bonds for the first time ever — and stayed below bond yields for, get this, 50 years.
That relationship didn’t change until the stock market collapse of 2008, when, like last month, low stock prices and falling interest rates caused the yield on the Dow Jones Industrials to rise above 10-year Treasury yields.
In an environment of 10-year Treasuries paying about 2 percent, selected blue chip companies, some paying 3 percent, 4 percent or 5 percent in dividends, are attractive, Duffy said. Many try to raise their dividends every year as their revenue rises.
Safety-conscious savers might not like investing in a stock market that bounces around like a yoyo and often resembles a casino, but as Duffy says, “They’re stuck with it for now” — for at least some of their hard-earned savings dollars.
Mark Rosenberg is an investment consultant for Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 439-9910 or

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