Lurking Price Increases Could Spoil Higher CD Rates
March 04, 2010
Conservative investors who are hoping for higher CD rates need to be on the look-out for price increases that may be lurking just around the corner.
Richard Barrington pointed out yesterday how holders of savings accounts and CDs must consider rising oil prices a threat to the value of those savings accounts and those CDs.
But oil prices are not the only potential lurking price increases. Countless American businesses are awaiting the day when the U.S. economy improves enough for some "pricing power" to return to goods and service providers.
As of now, businesses from carmakers to tax preparers are fearful of raising prices because their customers simply cannot afford to pay higher prices. To be blunt, most everyone is quite broke at the moment.
This general brokeness benefits people who have money saved up in savings accounts and CDs in the sense that the dollars held in those accounts have a lot of purchasing power in the current economic environment. Even though deposit account rates are low, it's not like prices of the things you would buy are going up too much.
If, however, the economy improves, especially the job market, you can expect that many businesses will raise prices ASAP.
This is one reason why we've repeatedly blogged about the wisdom of setting up a low cost lifestyle as much as possible, rather than focusing exclusively on getting the best rates on savings accounts and CDs.
Yes, the income side of your personal balance sheet matters immensely, but the expenses column makes or breaks many an American household.
