THE NEW RULES OF RETIREMENT SAVING • 35
I’m going to tell you a story that sounds unbelievable, but I promise you, it’s true. When I was in my thirties, I opened a checking account at a local bank in Louisville, Kentucky. It was a basic account, a place to deposit my salary and write checks to cover our bills. (This was the 1980s. You actually had to write a check, put it in an envelope and mail it to pay your bill.) I was very careful about when I paid my bills. I always waited until the last possible day. This odd behavior wasn’t because I was broke: I had plenty of money to cover what I owed. But I was still very concerned about timing. You see, in 1980, my checking account had an interest rate of around 18 percent. Yes, you read that right: 18 percent. That meant the money in my account was earning at an annu- itized rate of 18 percent interest every day. Naturally, I wanted to keep money in the account as long as possible. And that meant paying my bills on the very last day they were due. What’s your checking account earning today? There’s a good chance you don’t know. And really, there’s no reason to know. Because the interest you’re earning on your money is pretty inconsequential. Most checking accounts today earn somewhere around 0.05 percent to 0.10 percent. Take note of where the decimal point is. Over the past two decades, lower i nterest rates have been a boon for borrowers. Auto loans? Less than 2 percent. Mortgage loans? Less than 6 percent. But the same lower interest rates that make it easy to buy a car or finance a home have made it very challenging to grow wealth safely.
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