Savings and investments can't continue considering banks' lowest interest rates ever

Debt cutting is popular now with numerous wanting more money in savings. A double dip recession is the main concern for the federal Reserve which intends on keeping interest rates as low as possible. Banks are getting fairly rich off the low interest rates. The low rate of interest 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 when Fed monetary policies shore up the banks it bailed out with billions, they are an “invisible tax” on savers, investors, pensions and endowments.

No incentive to save

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 in the whole American country. Between January 2004 and July 2010 was when more savings rates were tracked. Savings rates decrease while national unemployment increases. If only unemployment would go down. Then savings rates would get to go up.

Banks make paying debt harder

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 pay down for those trying to save and have less debt. 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 an invisible tax

The Fed’s rate of interest policy might be part of the economic problem. The New York Times had an article by Gretchen Morgenson explaining this. Investors and savers lose about $350 billion a year with this “invisible tax” the Fed is giving, says Todd E. Petzel of Offit Capital Advisors talking to Morgenson. He got that figure by starting with about $14 trillion in debt issued by the Treasury at an interest rate near zero. 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.

Additional reading

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