Archive for November, 2006

Don’t Ignore Inflation

November 30, 2006


A column in last weekend’s Globe and Mail implores readers to stop procrastinating and start saving money as soon as possible. A typical example is provided to show the power of compounding: Mr. Early invests $5,000 every year for 10 years and ends up with a larger nest egg compared to Mr. Late who started investing just 7 years later and continues to invest the same amount for 28 years.

While the example is very powerful, there is a bit of fallacy involved because the effects of inflation are completely ignored. In the example quoted in the article, Mr. Early invests a total of $50,000 and ends up with a nest egg of $496,055. Mr. Late, on the other hand, invests a total of $140,000 and his nest egg only grows to $476,695. If we assume that inflation runs at a modest 3% rate, Mr. Early’s inflation-adjusted investment is $120,000 and Mr. Late’s real investment is $226,000. Note that Mr. Late’s total investment is double that of Mr. Early’s, not triple as in the original example.

Investing early pays a rich dividend as evidenced by Mr. Early’s bigger nest egg despite investing only half of what Mr. Late did. It is just that the advantage, while still huge, is not as large as it is usually advertised.

Avoid Wasting Groceries

November 29, 2006


A post on Sitting Pretty reminded me of an old post on saving on groceries by avoiding wastage. To recap, many studies have shown the American households waste an average of 14% of their food purchases, worth about $590 every year. I am guessing that Canadians waste a similar amount of food and our household was no exception.

I am happy to report that a few simple steps like making a shopping list, planning a menu, shopping for produce once every weekend and just checking the fridge before shopping has drastically cut down the amount of food we used to throw away. It is amazing how when something becomes a habit, we tend to just keep doing it without a second thought.

High Interest Savings Accounts

November 28, 2006


It is amazing how competitive the online high interest savings account marketplace has become. The Financial Post reported the other day that even mighty Wal-Mart is planning to enter the crowded field. Here’s a long list of places where you can now park your cash:

  • ING Direct: The pioneer in online savings account no longer offers the best interest rate. 3.5% on C$ and 3.5% on USD accounts.
  • President’s Choice Financial: The Interest Plus savings account offers 4% if the daily balance is $1,000 or more. A bonus interest ranging from 0.03% to 0.25% is also paid every year.
  • Achieva Financial: The Manitoba-based credit union offers a daily savings rate of 4.10%. Deposits are insured by Credit Union Deposit Guarantee Corporation, not CDIC.
  • E*Trade: Just announced its Cash Optimizer Account offering 4.15% on C$ balances and 4.75% on USD balances.
  • HSBC Direct: Another new entrant offering 3.5% on C$ accounts.
  • ICICI Bank Canada: Offers 3.75% on C$ and 4.25% on USD accounts. Watch out for customer service issues.
  • Dundee Bank: Only available through a financial advisor and offering 3.85%
  • Amex Bank: American Express offers an interest rate of 2.40% that is now scraping the bottom of the barrel.
  • Altamira CashPerformer: Also available through your discount brokerage account (watch out for redemption fees). 3.75% on C$ accounts and 4.5% on US$ accounts.
  • Outlook Financial: Another Manitoba-based credit union offering 4.10%. Deposit insurance is through Credit Union Deposit Guarantee Corporation.
  • Canadian Tire High Interest Savings: This new entrant offers a 3.8% interest rate.