It’s a well-known fact that cash and CDs yields are at historic lows. MFS Investment Management conducted an interesting survey last year. At the time, CD rates were averaging 0.34%, and they aren’t much different today. After inflation, CD investors are actually losing purchasing power at a rate of -2.36% per year!
The part that we found interesting in this study was the difference in the perception of Cash and CDs rate of return across different generations. Baby Boomers, Gen X, and Gen Y each had vastly differently “believed” rates of return. All of which were huge overstatements of what their cash was actually returning. Gen Y respondents thought they were earning 9 times more than they actually were!
MFS did not conjecture why each generation had widely varying and inaccurate return assumptions. Our best guess is the older generation’s investment and financial experience gave them a slightly more accurate estimate, although still overstated.
In our next blog, we’ll look at how to answer the following questions: So what should I do with cash or money markets? Are CDs a bad investment right now? When are interest rates going up?