Savings is popular. That is because many just want to cut out debt. Interest rates are very low right now. That is mostly since the Federal Reserve is worried about the economy making a double dip. Record-low interest rates are fattening bank bottom lines. Banks are making a bit of money. The gap between what a consumer pays and what the bank pays is large enough to make additional money with. Some analysts are saying that when Fed monetary policies shore up the banks it bailed out with billions, they are an “invisible tax” on savers, investors, pensions and endowments.
Little reward for saving money
Savers are getting the least amount of rates on savings account as possible. 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 in the whole American country. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. Savings rates decrease while national unemployment increases. The report concludes that when the unemployment rate goes down, interest rates on savings will go up.
Getting rid of debt hard with a bank
Banks get a reward when citizens are punished with the near zero from the Fed. Getting less debt and saving more doesn’t help. The individuals doing this seem to just be running into more debt. Larry Doyle at Daily Markets writes that miniscule interest rates are squeezing people who live on fixed incomes. Savings accounts generate a negligible returns. Banks don’t have to pay hardly anything to borrow money. This means they will continue to raise interest rates on credit cards in order to get more money.
Invisible tax
The Fed’s interest rate policy can be part of the economic problem. The New York Times had an article by Gretchen Morgenson explaining this. Todd E. Petzel of Offit Capital Advisors told Morgenson that 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 started with the $14 trillion lent by the treasury with the super low interest. Rates have averaged 3 percent over time. That makes current rates too low by 2.5 points. 2.5 percent of $14 trillion adds up. In fact, savers, investors, pensions and endowments will then lose about $350 billion a year. When compares, more than 2 percent of gross domestic product is lost. Not only that, but there’s also a 3 percent loss in disposable personal income.
Find more data on this subject
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
