Wednesday, April 01, 2009
One of the things that has always bothered me about this brave new world of serial asset bubbles, where freakishly low interest rates are simultaneously the cure for the bubble that just burst and the fuel for the bubble about to inflate, is that a nation in dire need of savings unnecessarily punishes its savers.
Up until the current decade, with few exceptions such as in 1992-1993 when the Fed's short term lending rate dropped to just three percent, you could pretty much count on getting at least five or six percent interest at just about any bank.
Well, not any more.
Rates for certificates of deposit are now at once unthinkable levels as shown above according to Bankrate.com and there is a disturbing new trend in recent years where the banks paying the highest interest rates seem to go belly-up shortly after you open an account.
GMAC is the latest example of this, offering over two percent for a savings account and closer to three percent on one-year CDs when most banks pay only a fraction of that amount. You may even be able to see this for yourself as ads for their products are likely to have popped up above and/or to the right as a result of this little rant.
In something of a cruel April Fools' joke today, part of a long-standing routine during the first couple days of the month to update Quicken personal finance records with monthly interest earned as reported by the bank, these lower interest rates are hard to ignore.
Unfortunately, in preparation for the possible purchase of a house this year (now put off for at least another year) a bunch of our CDs have recently expired and where you used to be able to get over four percent, you can't even get two percent now.
It really is disgusting.
While it doesn't impose a hardship on us (it's more an annoyance than anything else), the worst part about this development is that you've got senior citizens out there who, during just about any other period in American history could be assured of getting a decent return on their savings, are now getting the short end of the stick - first from Greenspan and now from Bernanke.
For as long as I can remember from being a kid, you could always get five or six percent on a safe and sound investment at the local bank - no risk, no big upside, just a steady stream of interest payments for letting them use your money.
A half million dollars should be able to generate at least $25,000 or $30,000 a year in absolutely risk free income, an idea that was once at the very heart of the U.S. banking system.
Today, you'd be lucky to get $10,000 a year from that same pile of savings. That's probably not even enough to cover routine medical expenses for your typical retired couple.
There is something seriously wrong with a savings-short American financial system that, since about 2002, has punished its savers.