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Another Fed Rate Cut - Doesn't Look Good for Savers

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As many had expected, the Fed cut the target federal funds rate today from 4.50% to 4.25%. Here's how the Fed explained the decision:
Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Apparently, they were more concerned with recession than inflation. They admitted that the elevated energy and commodity prices may "put upward pressure on inflation." Perhaps this prevented them from cutting by 50 basis points. One of the FOMC members did vote against the 25 basis point cut in favor of a 50 basis point cut.

So with this new rate cut, it's likely we'll see a continuation of savings account and CD rate cuts that we've seen in the last few months. With the Fed rate now a whole percentage point lower, 5% for CDs and savings accounts may become as difficult to find as 6% was earlier in the year.

There are a few online savings accounts with rates over 5% that have held their rates steady since the Fed started cutting rates. These include OneUnited and Savings Square. Others like Countrywide, Zions and UFB Direct have lowered their rates, but have kept rates well above 5%. It may be only a matter of time before we also see major cuts at these accounts. If you want to avoid experiencing a rate drop right after opening one of these savings accounts, you can try one of the three savings account promos that are guaranteeing the rate for 3 months. This includes EverBank's 5.51% money market and checking promo, UmbrellaBank's 5.50% savings account promo, and AmTrustDirect's 5.26% savings account promo. The only other alternative for a longer lock is a CD, but these rates are dropping even faster than the savings account rates.

For the latest savings account and CD rates, please refer to my latest weekly summary of rates.


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Comments
13 Comments.
Comment #1 by Anonymous posted on
Anonymous
Very disappointing....

1
Comment #2 by Anonymous posted on
Anonymous
Very disappointing indeed. But we all knew it was coming. Be thankful that it was only a 1/4 point cut not the half point that many financial institutions really wanted to help save them from themselves.

1
Comment #3 by Anonymous posted on
Anonymous
The greedy WallStreeters actually sold off the stock market because the half point they wanted did not materialize. This IS going to be tough for savers. And the added hit to our puny, almost-dead US dollar will be the the second half of a double whammy for us.

1
Comment #4 by SVG (anonymous) posted on
SVG
 

Readers,

Nice move by FEDs - in-line with their dual mandate. IMHO this move by the FEDs is necessary to save to economy as we know it.


Anon,

>>The greedy WallStreeters actually sold off the stock market because the half point they wanted did not materialize.<<

Err ... won't that be the fearful rather than greedy ? *smile*


Banking Guy,

The response by the banks/CUs should be swift. Ascencia has lowered their APYs for 6/12mo CDs already. Down from 5.21 each to 4.81 and 4.78 respectively.

- SVG

 

1
Comment #5 by Anonymous posted on
Anonymous
It just doesn't pay to be a saver and wait until you can afford something before buying it.

The traders on wall street seem like a bunch of spoiled brats. They didn't get what they wanted so they threw a fit.

1
Comment #6 by SVG (anonymous) posted on
SVG
 

Anon,

>>The traders on wall street seem like a bunch of spoiled brats.<<

Hardly. I don't believe that it makes sense to bunch all the traders together, and then on to use some stereotype to describe them. Each individual trader is quite different than the other in many ways.


>>The traders on wall street seem like a bunch of spoiled brats.<<

Err ... would you then agree if someone were to say: 'The savers on Bank Deals are cry babies, they start throwing a fit when they lose 25 basis points. What a sorry bunch !'   *smile*

- SVG

 

1
Comment #7 by Anonymous posted on
Anonymous
"Both parties agree that rates should be frozen low, so that existing borrowers don't have to pay market rates. This strategy only forces banks to hold low-quality loans and passes the risk up the chain of borrowers, penalizing people with good credit and rewarding people with bad credit – which is essentially the opposite of what credit markets are supposed to do."

1
Comment #8 by Anonymous posted on
Anonymous
Another careless move by the Fed. I am from Singapore and over here most Asian countries including some important European countries are recognizing the diminishing value of the dollar. It is does not have the same power as it used to. I believe the Euro is gaining momentum. The Middle Eastern countries are not happy with their reserves in the US $. You will seen a major shift in forex valuation in the coming years away from the US $.
Also, there is heavy consensus among foreign investors that the U.S. is not as attractive place of investment as it used to be. Some of it is attributable to your economic policies but mostly, American foreign policy. I wonder why Americans are so complacent about their own economic and social issues.
These are just observations.

1
Comment #9 by Anonymous posted on
Anonymous
"Both parties agree that rates should be frozen low, so that existing borrowers don't have to pay market rates. This strategy only forces banks to hold low-quality loans and passes the risk up the chain of borrowers, penalizing people with good credit and rewarding people with bad credit – which is essentially the opposite of what credit markets are supposed to do."

Agreed. I have top flight credit and the offers I can get are now much worse. No more 0% teasers anymore to boot!

The fed only cares about preserving the wealth of the status quo, ie the rich boys club.

1
Comment #10 by SVG (anonymous) posted on
SVG
 

Anon,

>>Both parties agree that rates should be frozen low, so that existing borrowers don't have to pay market rates.<<

When two parties (borrower/lender) agree upon something financial/legal, then all the third parties have no 'locus standi' in this matter.

I guess all the third parties need to take any indirect effect such an agreement may have on them in their stride, rather then cribbing about it.


>>The fed only cares about preserving the wealth of the status quo, ie the rich boys club.<<

Don't think so.

FEDs have their dual mandate that they care about. Nothing else rich/poor or savers/borrowers/investors/traders should matter to them. I am a participant (tiny of course) in the US financial system, and I feel very happy that FEDs are watching over our financial system and doing what we (citizens) have mandated them to do.

- SVG

 

1
Comment #11 by Anonymous posted on
Anonymous
@anonymous from Singapore --

In the US, we've got this thing called democracy. Singapore is considered only "partly free" in the annual Freedom House study, with political rights and civil liberties scores of 5 and 4, respectively. Compare to the US, which is considered free, and has scores of 1 in each of the aforementioned. Contentment should not be mistaken for complacency.

1
Comment #12 by Anonymous posted on
Anonymous
SVG, I think you got fact and fiction mixed up. It was the artificially low interest rates that got the credit markets in this mess in the first place and now the Feds are are track to repeating itself and making things worse. Also, individual investers don't move the markets. It is the financial institutions on Wall Street with their programmed trades that cause the wide swings up or down.

1
Comment #13 by SVG (anonymous) posted on
SVG
 

Anon,

>>It was the artificially low interest rates that got the credit markets in this mess in the first place<<

Nope. The mess (if any) is a result of lenders lending monies to folks who are rated 'sub-prime'. (Personally I don't believe it is a mess. Lenders are of course free to lend monies to any borrower whom they choose. Parties that are neither lenders nor borrowers in any of the transactions have no 'locus standi' whatsoever.)

>>Feds are are track to repeating itself and making things worse.<<

You are entitled to this opinion of yours, however I'm afraid you are going to find yourself in minority.

You see, in the US, all the citizens are collectively responsible for the actions of their government. Therefore the elected/selected/appointed/... FOMC members (in theory at least) speak/act on behalf-of and for the good-of the majority.

If you (or anyone else) thinks that your own Federal Reserve is not acting in your best interest ... well ... then you have the power to change it ... exercise it.



>>Also, individual investers don't move the markets. It is the financial institutions on Wall Street with their programmed trades that cause the wide swings up or down.<<

That is true.

But then again most of these financial institutes are owned and operated by their shareholders (both citizens and non-citizens of the US). And they do whatever they feel is in the best interest of their shareholders.

The fact that the program trading has survived for such a long time perhaps is an indication that the majority of the shareholders approve of it. So ... what's the issue here ? *smile*


- SVG

 

1