Debt cutting is popular now with numerous wanting more money in savings. 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. 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. Endowments, investors, pensions and savers are very affected by this “invisible tax.” The Fed monetary policies cause much of this problem.
Now saving is unimportant
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. The rate of interest index produced by Market Rates actions rates and bonuses paid by 1,300 commercial banks and credit unions of all sizes around the U.S.. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. Savings rates decrease when national unemployment increases. Savings interest rates go up after unemployment goes down.
Banks make it harder to settle debt problems
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 reduce debt and save more seem to have the deck stacked against them. Low interest rates effect mostly those people who have fixed incomes. Larry Doyle at the Daily Market reports this. You don’t get any money out of savings accounts. Banks don’t have to pay hardly anything to borrow money. This means they’ll continue to raise interest rates on credit cards in order to get more money.
An invisible tax is what a low rate of interest is considered
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 that the Fed’s interest rate policy is an “invisible tax” that costs savers and investors about $350 billion a year. Since the Treasury lent about $14 trillion with a near zero interest rate, he started there. Rates have averaged 3 percent over time. That makes current rates too low by 2.5 points. $350 billion a year in loss to savers, investors, pensions and endowments is what 2.5 percent of $14 trillion adds up to. 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
