Savings is popular. That is because numerous just want to cut out debt. The Federal Reserve, in an effort to keep the economy from a double-dip recession, is keeping the benchmark interest rate artificially low. Record-low interest rates are fattening bank bottom lines. Now the range between what borrowers have to pay and what financial institutions have to pay is wider with the low interest rates. Some analysts are saying that when Fed monetary policies shore up the banks it bailed out with billions, they’re an “invisible tax” on savers, investors, pensions and endowments.
Little reward for saving money
U.S. banks are paying savers the lowest average rates on record. Bloomberg did a study with Market Rate Insight suggesting that 0.99 percent was about how much in July was paid towards interest on checking, savings, money market and certificates. Market Rates measured anything that was a rate or bonus paid by 1,300 banks and credit unions within the whole American country. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. One goes up when the other goes down. The report concludes that when the unemployment rate goes down, interest rates on savings will go up.
Banks make paying debt harder
Fed monetary policy that is holding the interest rate at near zero, some believe, is rewarding banks and penalizing the average citizen. People who want to cut back debt and save more seem to have the deck stacked against them. Daily Markets’ Larry Doyle explained that those with fixed incomes are having a bad time with low interest rates. Savings accounts generate a negligible returns. Credit card issuing banks make sure they raise interest rates on credit although it is costing almost nothing to get it themselves.
Low interest rates
The New York Times’ Gretchen Morgenson explained that economic problems may be continuing because of the Fed’s interest rate policy. Todd E. Petzel of Offit Capital Advisors told Morgenson the Fed’s interest rate policy is an “invisible tax” that costs savers and investors about $350 billion a year. He worked hard to get that number. He began with the $14 trillion lent by the treasury with the super low interest. 3 percent has been the typical rating. That is the average over time. That makes current rates too low by 2.5 points. On $14 trillion, 2.5 percent adds up to $350 billion a year in lost income to savers, investors, pensions and endowments. The money lost is more than 2 percent of gross domestic product and almost 3 percent of disposable personal income.
Bloomberg
bloomberg.com/news/2010-08-24/u-s-banks-paying-depositors-record-low-interest-rates-market-rates-says.html
Daily Markets
dailymarkets.com/stock/2010/08/24/invisible-taxes-loan-sharking-usury/
New York Times
nytimes.com/2010/08/22/business/22gret.html?_r=2 and amp;ref=gretchen_morgenson
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