Do you remember the good old days of getting high interest rates on your dollar deposits?
Remember when you used to look forward to getting your monthly statement because the high interest earned made a substantial difference in your bottom line. This doesn’t necessarily only have to be a memory of the past – you can still get high interest on dollar deposits if you know where to shop.
Don’t make this mistake
Before looking for high-interest investments, keep in mind that in the days when bank deposits offered 10% or more, inflation was also rampant. In other words, if the bank paid you 10% on your money but inflation was also running at 10%, you didn’t actually make anything. In fact, your money lost value. For example, if you put $100 in the bank, earned $10 interest, and paid $4 tax, you would have ended up with $106 in your pocket at the end of the year. But, due to inflation, if filling up your grocery basket cost $100 in January and in December buying the same goods cost $110, your money would not have grown commensurately.
Don’t make this other mistake either!
Don’t make the common error of buying lower quality bonds (sometimes known as “junk bonds”) if that doesn’t correspond to your risk tolerance and long-term goals. The main reason one company will pay a significantly higher interest rate on its bonds compared to another is if it is a riskier bet. If you shouldn’t be taking those kinds of chances, stay away.
Safety and a fair interest rate
Since the beginning of 2018, the bond markets have begun to offer some improvements in terms of yields. One of the ways that many investors capture that uptick is by buying either corporate bonds or FDIC-insured Certificates of Deposit (CDs). I’ll be talking more about bonds in my upcoming webinar (register here), but meanwhile ask your investment advisor to compare CDs and corporate bonds to see where you can get comparable yields and more safety.
Feel free to get in touch with me if you’re looking for higher yields on your dollar deposits.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published November 19, 2018.