A recent HSBC Direct survey says that 58% of investors are considering cash as an investment. Many investors are a bit concerned with recently market volatility. Even with the Dow Jones Index scoring a one-day gain of 200+ points near the end of June - the highest single-day gain since March 2003 - the Dow also dropped by well over 200+ in several straight days only recently. This is bad news for any small investors considering entering the market. Hence, cash investments - including money market funds and online savings accounts - are very hot right now.
A CNBC TV Power Lunch segment says that retirement nest eggs may not be protected enough. So the sooner in your life that you start saving, the better. I couldn't agree more. Interestingly, they also said to watch your health, get regular checkups, and surprisingly, mind your marriage. The divorce rate is high, divorce costs a lot of money, and not listening to each other is often the reason marriage breaks down.
More specifically, a CNBC TV Closing Bell segment says that as many as 2/3 of Americans will not be able to maintain their standard of living when they retire. While working past 65 may be an option for some, Frank Fernandes of the SIA (Securities Industry Association) says that there may not be enough jobs if seniors do not retire. And given that people are living much longer today than in previous generations, there is a serious problem re savings for retirement.
Closing Bell reported the findings of a survey. People surveyed said that they are relying on a variety of sources for retirement income, with 39% of their income expected to come from social security. As experts have been saying lately, relying on just social security may be a very bad idea. Furthermore, they are concerned that this is more than just a crisis, as it is not a short-term problem.
Further studies reveal that the average American has less than $50,000 in retirement savings. What can people of pre-retirement age do to prepare themselves? Well, given the market volatility, the short-term solution may be cash investments. Given the popularity of online savings account offerings from institutions from banks like Emigrant Direct or Ing Direct, several other American banks have started offering similar "direct" online savings account plans.
As I've mentioned previously, online savings accounts are protected by the FDIC for up to $100,00 per person - just like a regular bank account. Protection is up to $100,000 per person per bank. So if you have several accounts at a bank totalling over $100,000, only the first $100,000 is insured.
Still, many investors have been depositing amounts of $250,000 and more, presumably into different online savings accounts, thereby protecting more of their money. In fact, over 90% of "mass affluent" investors (between $100,000 to $1,000,000 in investable assets) surveyed by HSBC showed a preference for online savings accounts over other cash investments such as CDs (Certificates of Deposit).
There are a lot of competitors in the online savings market now, so you have a lot of options. Despite varying interest rates, however, there are different conditions at each bank. Some offer very high rates but expect a high balance to pay out any interest. So shop very wisely. The average American probably does not fall into the "mass affluent" category, but should consider that status, or higher, as part of their retirement goals. Cash investments can help you during times of market volatility.
Over the next couple of weeks, I'll compare a few of the newer online savings accounts to the veteran offerings.
Additional sources: Examiner, Finanzen, CNBC TV.
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