American savers are getting “screwed” by Federal Reserve Chaiman Ben Bernanke’s destructive interest-rate policies, while banks are flush with profits, says a banking-industry observer.
While interest rates have risen on home and car loans over the last year, interest paid on saving accounts has fallen to miniscule levels. And when inflation is factored in, you lost money on that six-month CD or money-market account.
“We’ve seen interest rates on everything from loans to bonds spike in response to recent comments from Bernanke,” notes Casey Bond, the managing editor of GoBankingRates.com. “Unfortunately, Fed policy continues to ignore the need for low-risk sources of growth, and depositors can expect to be screwed for the foreseeable future.”
Savers looking to put some money aside for retirement or other goals, she notes, are being squeezed. The buying power of their dollars is being hurt by Bernanke’s policies.
For instance, say your money has been in an interest-paying checking account, a money-market account, a savings account or a six-month CD. You’ve lost money, Bond says, even though your balances are slightly rising.
When one figures in the government’s official inflation rate (which some have claimed even undercounts the cost of certain items), the value of all these accounts has dropped.
According to Bond’s report, the average interest rate paid on every savings product offered in the survey declined from last year, while every category of loan product increased.
So the banks, while getting lending capital at near-zero interest rates, have fattened their balance sheets on rising loan rates and by cutting interest paid out.
Should you have a large savings deposit?
“Absolutely not,” says Anthony Ogorek, a certified financial planner. “The Fed has put [millions of Americans] in the penalty box.”
Bond says some investors are being forced into the stock market as one of the few places they can beat inflation.
“But many people don’t want to go into the stock market,” she says. “They remember what happened five years ago when the market melted.”
In the short term, savers are unlikely to get a break from ludicrous returns. The Fed has said it will not raise interest rates until unemployment comes down dramatically.
Earlier this year, the Fed, through its Open Market Committee, announced it will continue its “highly accommodative stance of monetary policy” for some time, until the economy recovers.
“In particular,” the Fed wrote, “the Committee decided to keep the target range for the federal funds at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds will be appropriate at least as long as the unemployment rate remains above 6 1/2 percent.”