This letter and screengrab from Gordon Wilson have stuck with me for days and days now. Wilson says he's happy to show us why people aren't saving. Yes, he says, some people just aren't used to putting money aside — but look what happens lately when you do. Exhibit A: The interest rates on certificates of deposit. He writes:
People should save. But there needs to be more of an incentive to do it. These saving rates don't even cover the cost of inflation.
One of the unfortunate side effects of having the fed rate at such a low level [0 to .25 percent] is that people who want to save are effectively punished for doing so. A 5-year CD at 1.75 percent?! That is outrageous.
Since 2000, annual inflation has generally ranged between 2 and 4 percent. If your money isn't growing faster than that, its purchasing power is shrinking. The bank will hand it back to you, with interest, but you can't do as much with it as you could have done today.