In today's economy inflation is back. I don't have any scientific way to prove this to you, I don't have the economics background for that. If you want to see data you can check out numerous websites, or, for a background of what inflation is, what it includes, and how it's calculated you can go to the US Department of Labor's Consumer Price Index website and find out about all the ins and outs of inflation.
If inflation is coming back you need to fight it. If the government is going to keep increasing interest rates you need to counteract it as much as you can. How is that possible? By taking that money that you have stashed away in your checking account and moving it into one of the many high interest savings accounts that have popped up recently.
About a year ago I saw a billboard while driving that advertised an ING Direct savings account that, at the time, had an Annual Percentage Yield (APY) of around 3.00%. What is an APY? If you want a technical reference, check out this Wikipedia link, but basically it is your interest rate. It ends up being a bit higher than the interest rate because it takes into account that the interest accrued in your account throughout the year accrues interest itself through the rest of the year in addition to your original principal.
When I saw the billboard I, of course, went out to the internet and found that it really was exactly how the billboard claimed, no strings attached. As long as I had $1 in my account I would accrue 3% interest. Here I was with money stuck in my checking account, accruing 0.25%, and I was missing out on this deal. I opened an account the same night and I was off and running.
A year later, as interest rates for borrowing keep going higher and higher, I maintain that these high-interest savings accounts are the way to go. In the last year I have switched from ING Direct to Emigrant Direct. Why? For no better reason than for the last six months Emigrant Direct has been at or near the top of yields given by banks. To check out the highest savings accounts rates nationally go to Bankrate.com. I highly recommend Emigrant Direct's savings account. The website isn't the fanciest in the world (I did get a letter in the mail recently that they are upgrading it in July) but it does everything you need it to do including recurring deposits from your checking account for those of you that wouldn't put money away otherwise.
You might be tempted to put your money into CDs instead of savings accounts but in today's economy I would recommend against it, at least for now. While the fed is raising interest rates, and they have been for a year and a half now, you risk having your CD rate of return being passed by your savings account midway through your term and you won't be able to move your money into your savings account. If the government does stop raising rates I might drop some money into a CD but it won't be anything longer than a six month CD for right now.
Emigrant Direct just increased my savings rate to 5.00% the other day. To have money in a completely liquid state earning that savings rate is a great thing. If you haven't heard about these savings accounts before now or if you've been hesitant to open up an account go out there and do it. We could all use a little more money in our savings and if we're going to tie it up in a bank we might as well make something in return.
