The majority of women, according to a Vanguard survey, are confident savers, but their cash management strategies may need a reevaluation. The survey reveals that 71% of women express confidence in setting aside cash for non-retirement savings, yet a significant portion of these funds are held in low-interest accounts or even physical cash. This is a critical issue, as inflation is currently running at 3.3% annually, and cash is not keeping up with purchasing power.
The survey found that 51% of women keep their non-retirement funds in traditional checking or savings accounts, or in physical cash. Among those, 46% have most of their money in accounts earning less than 3%, which is below the current inflation rate. This means that their savings are losing value over time. A certified financial planner, Carolyn McClanahan, emphasizes the importance of placing money in the right location due to inertia. She suggests that women might have their savings in a checking account linked to a savings account at the same bank, which often pays low interest.
To combat this issue, McClanahan recommends high-yield savings accounts, which currently offer around 4% annual interest, compared to the national average savings account yield of 0.59%. Money market accounts are also a viable option, providing similar interest rates and often offering check-writing ability or debit card access. However, they may require a higher minimum balance than savings accounts.
For those who need immediate access to their funds, certificates of deposit (CDs) and U.S. Treasury bonds are safer alternatives, but they offer lower liquidity. CDs have a set term and guarantee principal plus interest at maturity, but early withdrawal typically incurs a penalty. Treasury bonds, on the other hand, vary in liquidity and interest payments, with a three-month Treasury currently offering a 3.6% yield.
The Vanguard survey highlights a critical aspect of women's financial management, emphasizing the need for better cash allocation strategies to combat inflation and ensure the growth of their savings. It is essential for women to be aware of the potential risks associated with low-interest accounts and to explore higher-yield options to protect their purchasing power.
