Personal Finance Blog By MoneyRates - March 2010

Can a seismic shift be considered subtle?

If you're talking about money market accounts, money market funds, the past confusion that they were the same, and the current more informed perspective of the conscientious saver investor, it seems clear that a seismic shift has taken place--but without overly large numbers of people noticing what's happened.

Money Market Accounts Not the Same as Money Market Funds

Money market accounts differ from money market funds--and now, unlike in the past, more people understand that fully.

More specifically, think of the change in perspective of the conscientious saver investor: choose an FDIC insured money market account, or a money market fund, which is basically a mutual fund of bonds.

And bonds are...bonds are promises from companies and cities and states that say they will pay everyone back later, and hopefully will. But the episode with Lehman Brothers bank certainly did damage to hopes.

Higher Money Market Rates Hard But Possible to Find

Safer money means cheaper money is a legitimate argument that a professional banker can make. When your money is safer, I pay you less to hang on to it, because I keep it so safe.

Once money market funds got exposed as risky, it could be expected that money market rates would fall. And they did.

However, don't underestimate some of the excellent money market account interest rates that you can find at Money-Rates.com. Though it's tough to find money market interest rates at 5 percent, 3 percent is a possibility.

Bank deposit customers got good news last week when it was announced that there was no change in the Consumer Price Index (CPI) for February. This meant that inflation had taken a break -- but one that may proved to be short-lived.

The issue of inflation is vital to anyone with savings, money market accounts, or certificates of deposit. The rates on those accounts are only as good as their ability to keep up with inflation. Already, savings account rates, money market rates, and CD rates on average have fallen behind inflation over the past several months. Unless those bank rates start to rise, each addition to the inflation rate means more purchasing power lost by bank deposit customers.

Inflation has been moderate, but consistently present in recent months, which is why the announcement of 0% inflation for February was a pleasant change. The key to keeping overall prices flat for the month was a decline in the energy sector, led by a drop in prices of petroleum products such as gasoline and fuel oil.

The key role of oil prices in the overall rate of inflation is reason for concern that February's pause in inflation will be short-lived. Oil prices have been the rise in March, which is reason to believe that inflation will resume its upward course when CPI numbers for this month are released.

This means that it remains crucial for bank deposit customers to shop actively for rates. Inflation is a serious foe, and therefore something you can't take lying down.

Although it is probably true that a certain portion of our society--namely, bloggers and other media types--pay too much attention to what other people say about banks. Experts are frequently wrong on bank topics.

One person that really does deserve a tremendous amount of recognition, however, when it comes to keeping a wary eye on your money that the banks have and hold, is Larry Kudlow of CNBC and elsewhere.

If you haven't watched Kudlow's show in a while, you may be surprised at how on target his pieces are if you're concerned that the banking system may be using your deposit money in ways you can't imagine or don't want to.

Kudlow is an interesting bird, too, in the sense that he is quite catholic in his viewpoints, extending both liberal and conservative commentators an equal amount of chivalry (unless someone dislikes Ronald Reagan).

So many huge, global money flow forces are affecting the value--and, frankly, the safety--of the money you hold in money market accounts, CDs, and savings accounts, it is frightening and interesting as well.

If you spend part of your time thinking you'd like to know more about what's going on with banks, you may benefit from choosing to spend part of your time ingesting information dispensed by Mr. Kudlow.

Kudos, Kudlow.

GetRichSlowly.org is sponsoring a video contest for people who have positive personal financial stories to tell. If you have such a story and an idea for a clever video, you could win $500 in the contest -- and give others the benefit of your knowledge.

The contest is especially timely in light of two recent polls that MoneyRates.com has been highlighting. One is a poll by the Employee Benefits Research Institute (EBRI), and the other was conducted by MoneyRates.com in conjunction with GetRichSlowly.org.

The EBRI poll showed some disturbing (though hardly new) trends in the retirement preparedness of Americans: low confidence levels in being able to afford retirement; significant percentages of people with little or no retirement savings; perhaps most inexcusable, the fact that most Americans have never even calculated how much money they'll need to retire.

The MoneyRates.com/GetRichSlowly.org poll presented a rosier picture, with 44% of respondents still planning on an early retirement -- before the age of 60. It is probably no coincidence that an audiences of two web sites dedicated to financial knowledge and responsibility should have a better handle on retirement planning than the general public. And that's where the video contest comes in....

If you are one of those people who has a strong grasp on their retirement planning, or if you just have some practical ideas on saving money, consider joining the GetRichSlowly video contest. There are two categories, Personal Finance Tips and Success Stories, each of which pays a $500 prize for the best video. Each category also awards ten runners-up an autographed copy of an upcoming book from the founder of GetRichSlowly.org, J.D. Roth. Check it out -- if you have some financial know-how to share, you ought to be in pictures!

There was no shortage of discouraging news in the latest survey by the Employee Benefit Research Institute (EBRI) regarding the retirement preparedness of Americans. Still, perhaps what stood out most was this statistic: less than half of U.S. workers have calculated how much money they will need for retirement.

That fact may strike you as shocking without further elaboration, but adding a little context makes it even more disturbing. Beginning in the 1980s, and then accelerating throughout the 1990s, the retirement system in the United States went through a radical transformation. Defined benefit pension plans were largely phased out in the private sector, and replaced with defined contribution plans, such as 401(k) plans.

What does that mean? Simply that employers were no longer responsible for funding the retirement benefits of their workers. Via 401(k) plans, they would provide a retirement vehicle for their employees, and maybe chip in a matching contribution. Beyond that though, their responsibility is finished. Making sure that enough money was saved over time, and that it was invested responsibly, fell to the American worker.

The EBRI study suggests that the American worker, on average, has not been up to that responsibility. Assuming that figuring out how much money you'll need in retirement is the first step toward actually starting to save that amount of money, it appears that most Americans literally haven't done the first thing to prepare for retirement.

MoneyRates.com regularly encourages people to raise their savings rates. As much as the environment of low bank rates might be discouraging, it also makes the need to save even more urgent. In addition, those savings rates should be building toward a goal -- after all, if you don't know how much money you'll need in retirement, your chances of accumulating the right amount are probably pretty slim.