Record-low interest rates fatten banks, hinder saving, investing

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. Banks are getting fairly rich off the low interest rates. The low interest rate has created a wide disparity between what financial institutions can collect from borrowers and what they have to pay depositors for their money. Some analysts are saying that while Fed monetary policies shore up the banks it bailed out with billions, they are an “invisible tax” on savers, investors, pensions and endowments.

Why conserve anymore?

Saving doesn’t matter much anymore. Savings rates are the lowest ever recorded. 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. When the national unemployment rate goes up, savings rates go down. Savings interest rates go up after unemployment goes down.

Banks set up roadblocks to debt reduction

The Federal reserve is keeping interest rates at almost zero. This is helping banks but leaving average citizens out to dry. Debt is hard to settle for those trying to save and have less debt. 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. Meanwhile, it costs credit card issuing banks next to nothing to borrow money when they continue to raise interest rates on consumer credit.

Invisible tax

The Fed’s interest rate policy may be causing more economic difficulties than it’s solving, according to Gretchen Morgenson at the New York Times. Morgenson talked to Todd E. Petzel of Offit Capital Advisors who gave his opinion. He thinks that about $350 billion a year is spent on this “invisible tax” that the Fed has created. He worked hard to get that number. He began 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. $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.

Find more details 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