Savings and investments hurt by low interest rates that help banks

Debt cutting is popular now with many 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. Now the range between what borrowers have to pay and what financial institutions have to pay is wider with the low interest rates. An “invisible tax” is what the amount lost is called from Fed monetary policies for savers, investors, pensions and endowments.

Reasons for saving gone

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. America had 1,300 banks tested by Market Rates. That is where this number comes from. The report also tracked savings rate fluctuations between Jan. 2004 and July 2010. There is a correlation between unemployment and savings rates. If only unemployment would go down. Then savings rates would get to 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 conserve 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. You don’t get any money out of savings accounts. Banks do not 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.

An invisible tax is what a low interest rate is considered

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. 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. 3 percent has been the typical rating. That is the average over time. 2.5 points is already too low. $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.

Discover more info 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