She Strengthens

The Savings Struggle is Real: Why Your Emergency Fund Isn’t Growing

As we strive to build a safety net for the unexpected, it’s disheartening to realize that our savings accounts aren’t generating the returns we need. Despite our best efforts to stash away three-to-six months’ worth of living expenses, the interest rates on our savings accounts are barely keeping pace with inflation.

A Privilege, Not a Guarantee

Having a solid emergency fund brings a sense of security, but it’s essential to acknowledge that this peace of mind comes at a cost. With interest rates hovering around 1.05%, our savings accounts are hardly growing. In fact, the returns are so meager that it’s almost as if we’re not earning any interest at all.

A Look Back at Better Times

NerdWallet’s research reveals that savers earned as much as 4.5% in 2006. Fast-forward to today, and we’re lucky to get a fraction of that. A high-yield savings account of $25,000 would have earned nearly $887 more in 2006 than it does now. That’s a significant difference, and it’s hard not to feel like we’re being shortchanged.

The Impact of Low Interest Rates

To put this into perspective, if I had saved $8,000 with a 1% interest rate, I would have earned around $80. But with a 4% interest rate, as was possible in 2006, I would have earned four times that amount – $320. That’s a substantial difference, and it’s clear that low interest rates are holding us back.

The Silver Lining: Americans Are Saving More

Despite the dismal interest rates, NerdWallet’s findings suggest that Americans are actually saving more than they were 10 years ago. According to the Bureau of Economic Analysis, the average American saved 3.3% of disposable income in 2006, but by 2016, that number had grown to an estimated 5.2%. While debt numbers continue to rise, it’s heartening to see that savings contributions are increasing.

The Harsh Reality of Emergency Funds

NerdWallet’s calculations highlight the harsh reality of emergency funds. If the average American saves 5.2% of their disposable income, they’ll have around $2,202.20 in annual savings. With an interest rate of 1.05%, that’s a paltry $23.25 annually. And if they’re stuck with the 0.01% offered by most large banks, they’ll earn a mere 22 cents in interest.

The Takeaway: Keep Saving, Despite the Odds

While the interest rate odds may not be in our favor, it’s essential to keep saving. Having a savings account to fall back on can be the difference between financial security and debt. So, let’s hold ourselves accountable for our savings and appreciate the efforts we’re making today, knowing that our future selves will thank us.