Savings accounts look as good as gold (or better!)

Interest on savings accounts is nothing to get excited about these days, but a recent tumble in gold prices is just the latest example of why the safety of savings accounts is extremely valuable.

Gold has tumbled by more than 10 percent over the past two weeks. Against that backdrop, CD, savings, and money market rates of around 1 percent suddenly look much more attractive.

The value of safety

Of course, gold is not the only example of an investment bubble that has abruptly burst. In fact, investors should be used to this pattern after the past dozen years. Dot-com stocks, real estate, and oil prices have all seen spectacular boom-and-bust cycles over that period. Gold may be on its way to becoming the latest investment to follow this course.

What's different about gold, however, is that it is often touted as a save haven in troubled times. The fact is, though, that the value of gold is highly dependent on price speculation. After all, it doesn't produce income or have any guaranteed price level. Its price fluctuations create opportunities to make money, but also the risk of losing money.

What's especially striking about the recent decline in gold prices is that it comes in the context of fears about the deteriorating financial situation in Europe. This underscores the fact that gold is not really a safe haven in times of trouble. It can be exposed to some of the same systemic risks as stocks and other financial instruments.

Accentuate the positive

On the other hand, you have the true safety of CDs, savings, and money market accounts. It's true that average interest rates on these accounts have shrunk to a fraction of 1 percent, except for long-term CDs, which pay a little bit more. However, the volatile investment environment has redefined what a good return is. These days, any positive return is a good thing.

You can accentuate that positive by shopping for CD, savings, and money market rates. That can allow you to add about a percent over average rates--no small victory in a climate where positive returns are scarce.

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