How savers can cope with minuscule interest rates

Joe Atikian Saving Money Book
Joe Atikian

By Joe Atikian

Special to the Financial Independence Hub

Savers almost everywhere have nearly been beaten into submission by seemingly perpetual Zero Interest Rate Policies (ZIRP) imposed by central banks around the world.

The simple connection is that when interest rates are low, there is no incentive to save money. The flip side is that low interest rates make borrowing cheap, so people raise their debt load. So, is it still worthwhile to save when interest rates are low?

Households can choose their savings level regardless of interest rates. That’s because saving money is not about earning interest, especially with today’s invisible returns! But it takes some additional foresight to motivate personal saving when interest rates are low, because the payoff isn’t immediately obvious. The most important foresight is that when you save money, your standard of living ends up at a higher level, with lower risk. That’s right, your standard of living is higher when saving is higher.

Many people think their standard of living is higher when they spend more, but they are missing half the story. More spending might increase their material standard of living, but it reduces their financial standard of living. Spending and saving are both good for healthy living, so overemphasizing either one of them can be harmful.

Negative Real Returns?

Still, people wonder if saving money is beneficial when rates are very low. And it’s no secret that when inflation runs higher than interest rates, the value of saved money declines. This is the case today, so households are torn between taking on debt at low rates, and the need to save up. It seems most North Americans have come down in favour of growing their debt instead of saving, but should they? The final answer will always be a judgement call, best made by you along with a well-qualified financial adviser. That is, as long as they don’t have a serious bias against saving.

Mortgage debt, for example, is fine as long as it’s affordable. But you can’t spend your house if you lose your job or encounter an emergency. Money in the bank is peace of mind. It gives you the flexibility to move or to change jobs. It’s the foundation of your financial power. Only saved money will do the trick, and that’s why saving money remains just as important as paying down debt.

Joe Atikian is an expert saver and author of Saving Money: The Missing Link, available at and all online book retailers. The following excerpt is from the sixth chapter of the recently released 2nd edition. 

SavingMoneySay No to Lifestyle Envy

One of the most powerful ideas about saving and spending has to do with the level of your lifestyle. What level do you think you are at? Do you compare yourself with others? Do you feel better off or worse off than your friends? This is all in your mind, but it can make or break you financially. One bad mental habit is to compare your material lifestyle to other people. It’s a bad habit because you will always lose. Someone else always has more than you, so envy is truly pointless. Besides, envy is financially destructive. Envy pushes your spending higher,  which could cut into your savings and reduce your wealth. Don’t ask whether or not you can afford something; instead, ask whether you want to afford it. Once you build up your desire for financial power, you will be better able to see that spending is not the only way to enjoy your money.

How does this comparison thing work? Let’s say that I have a slightly lower income than one of my neighbours. The flip side is that I have a higher income than another neighbour, so I shouldn’t care. That’s just an unavoidable reality. Someone always has more than I do. But because incomes cannot be seen, the only thing that neighbours can compare is material possessions. So that’s what neighbours do. Then they make the mistake of thinking that people with fewer possessions are financially weaker. Wrong.

The upward spiral of saving and investing

Savers may have somewhat less stuff than non-savers, and they may have fewer restaurant meals, cars, or vacations. But along with that, savers will have more wealth. The idea is that saving a bit more leads you to having a bit less stuff than the neighbour, but the neighbour has less financial power than you. Of course, you can enjoy your growing savings which, by the way, you could invest. And if you invest well, your wealth will grow even more. You can see the upward spiral already. Eventually the saver who ignores the neighbours is the one who can afford to choose, and may end up having more stuff than the non-saver. In the end it is mostly your attitude toward comparisons that determines your growing financial power. And financial power is a real part of your standard of living, just as real as possessions and experiences.

Look at some numbers. Does it matter a lot if you live like a $50,000 earner instead of a $45,000 earner? Of course not. It is nearly impossible to tell the difference. You are neither miserable nor living high relative to your co-workers in a similar income bracket. But the difference becomes hugely important if that $5,000 gap per year is put to pure saving for 30 years. The difference is more than $300,000 in the bank. At 40 years it’s over $500,000 in the bank. Half a million. What sounds like more fun? Being a 60-year-old non-saver with zero, or a 60-year-old saver with half a million in the bank? And remember, that wasn’t 40 years of saving in penny-pinching misery and clipping coupons, it was 40 years of a barely noticeable difference in material lifestyle. Through that entire time you would have financial power, free choice, and less mental stress from being cash strapped.


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