Does The Sky Fall When Interest Rates Drop?

“Interest rates have dropped! We must immediately panic and overturn the government” – said by weirdos.

Recently, in Canada, RBC bought Ally Bank and decided to cut the interest rates on the savings accounts. With the interest rates down, I saw nothing but protests and complaints on Facebook/social media. I didn’t really react because I don’t have an account with them and because the interest rates were already horribly low to begin with.

I always see people stressing about interest rates and small rate changes. They act like it’s the end of the world. While it does suck that a bank would disrespect you and your money by cutting the amount of money they give you, it’s not the worst thing.

Does the sky really fall when interest rates drop?

@studenomics Anyone who cares either has no idea how to invest or is poor. Do you think Warren Buffett cares?

— Nelson Smith (@financialuproar) February 25, 2013

I decided to do some research to see the numbers involved here with the high interest accounts being cut. I went over to the Ally Bank savings account calculator to see how the interest works and how much money you can earn off interest.

What are the real numbers you can make off interest?

So let’s say you have $50,000 just sitting around (totally doubt it!) and the current interest rate of 0.9% is in effect. What do you earn per year in interest? $452.03.

What will $5,000 do? $45.20.

So you have to put up five grand to earn $45 bucks. That’s horrible if you ask me. Only $45 for that much money is insane. You could do so much more with five big ones.

A savings account is a great place to store your money and to hide it. It’s not a great place to make money on your money.

This then leads to an important topic that I love to cover on here…

Where can you keep your money?

Where should I invest my money? I have a bunch of savings and I don’t know where to put the money?

I’ve received a version of one of those questions many times through text message, Facebook inbox, Twitter DM, drunken chat in person or blog comment.

Savings account.

Yes, interest rates suck. However, there’s nothing wrong with being boring. I’ve kept my money in a savings account recently because I love the liquidity and I’ve been more focused on investing in myself.

If you’re not sure with what you want to do with your money, but you just want to save it, I would recommend a savings account for now.

Invest the money.

You can always invest in the stock market.

Check out my piece where I look at how the stock market works. If you want to get started, you should read about stock trading tools that I’ve covered. You can get started today if you’re not afraid to take on some risks. Those articles give you more than enough information to get started.

Enjoy experiences that life has to offer.

One of my long-time readers had just finished school with some savings and he had a job lined up already. I suggested to him that the best move to make would be to just to go on a once-in-a-lifetime sort of trip. We can help you plan your next adventure.

I actually highly recommend that every young person goes on an epic adventure or at least on a trip where they drink themselves silly while meeting new people. If you have some money saved and have always wanted to do this, now is the best time. Don’t wait until you’re older because something will always get in the way. This is when you’re the most free. Not when you get a full-time job or when you’re about to get married.

How do you allocate your money? You invest in anywhere fun?