Some people gripe about the low interest now paid on money markets.Yet these can effectively produce truly high returns.

How? The answer is to save for things before you buy them. By using that cash that you had in 0% return on investments to buy something that otherwise would require credit, you can save from paying perhaps 4% to 15% interest or even more until the loan is paid.

Debt is a negative investment. So it takes an investment that makes 10% to offset a 10% loan of the same value. Accountants calculate "net worth." That's defined as assets minus liabilities. An investment is an asset. A debt is a liability, that is, a negative asset.

It's true that money markets can be a drag on retirement accounts, but it's not true when used for emergency reserves and replacing things that wear out. Without the cash to pay immediately, people buy things on credit. So they incur a debt. Debts have much higher interest rates than money markets. So if you can buy large items with cash instead of credit, you avoid a high negative interest rate.

But you say it's common to find loans where you pay no interest for a period and have zero down. Say it's for a new car. Fail to make a payment though, and the seller then keeps the payments you've already made and repossess the car or puts a high interest lien on your house or garnishes your wages. That can cost far more than even 15% interest. Further they have added loan costs to the purchase price. These sellers aren't stupid.

Well, you opine: "The 4% to 15% doesn't account for the low interest rate during the period you are saving for the future purchase." That's true if for a single purchase, so the net gain may be only half of the 4% to 15%, but there is no risk from the penalties of default on the loan. Look at it the other way, those who are always behind and maintain a credit card debt balance truly have negative interest costs of about 15%. So if you maintain enough cash to pay the bills within a month, you've saved a major loss in interest.

You can do even better by buying Savings I Bonds instead of money markets for your emergency funds and large future purchases. These bonds pay a coupon plus inflation. The coupon in recent times has been close to 0%, so Savings I Bonds are paying whatever inflation was in the last period. I have held on to Savings I Bonds for years with coupons of over 3%. With 2% inflation, that's a 5% return on a liquid, AAA-rated, tax-deferred security. After one year, you can sell them without a commission, get your full principal and the interest earned less income tax due on that interest. After 30 years, Savings I Bonds don't pay interest any more. Meanwhile the taxes are deferred until you cash them.

Saving before you buy can have an even larger monetary return. That's what happens when you delay your purchase and then decide later that it wouldn't have been worth the sacrifice. It's surprising how fast newness fades on almost any purchase. Or perhaps a new model comes out that's even better, or perhaps the model you were considering is recalled because of an important fault. It's hard to beat not buying many things. That money can go into savings and provide much greater wealth later on.

Similarly you may choose to sell something that you once thought you just had to have. My wife had some cash from the sale of just such an item. Now, 20 years later after investing the money from the sale in a stock market index fund, her savings from the sale grew almost 10 times, far more than inflation increased prices over the same period.

A dollar that you spend cannot be saved. A dollar saved can be worth a lot, not just by avoiding credit purchases, but by benefiting from the miracle of compound interest. Benjamin Franklin understated the benefit when he said, "A penny saved is a penny earned." It's a penny plus interest.

More from Henry K. Hebeler:

How to profit from Social Security’s quirks

6 ways low-savers can save their retirement

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