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A Surprise Fed Rate Cut of 75 Basis Points

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The Fed just cut the target for the federal funds rate by 75 basis points to 3.5% in an unscheduled meeting today. Here's an excerpt from the FOMC press release:
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.

This CNN article has more coverage of this rate cut.

I'm afraid the days of 5% savings accounts and CD rates will soon be history.


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Comments
27 Comments.
Comment #1 by Anonymous posted on
Anonymous
The Fed keeps cutting the rate and the markets keep going down. This Fed cut hurts many people who live off the interest made from their safe, insured Savings Accounts and CD's. Many people do not want to take the gamble and invest in stocks. Many just want the insured accounts. This is so unfair to those people. There should be rules that one can get at least 5% for FDIC insured bank accounts. It is expected that the Fed will continue to cut rates, so bank rates will continue to fall.

Thanks to Bank Deals for keeping us informed. Keep up the good work.

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Comment #2 by Anonymous posted on
Anonymous
When Wall street whines,the Fed caves in...

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Comment #3 by stormy (anonymous) posted on
stormy
Time to re-finance current loans (mortgage) right???

1
Comment #4 by Anonymous posted on
Anonymous
Umbrella Bank just pulled the Green Day intro rate effective tomorrow. They are already updating their website and it doesn't show on the homepage. I contacted them and they advised me the best rate now will be the Pot o Gold Money Mkt (after tomorrow).

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Comment #5 by SVG (anonymous) posted on
SVG
Anon,

    >>There should be rules that one can get at least 5% for FDIC insured bank accounts.<<

Why ?

Are you implying that the banks should suffer losses, but their customers should benefit ? In-other-wrods - the stock holders of the banks should bear the brunt of getting lower returns, but they should keep giving their customers higher returns ? ... Nope it does not work like that in our capitalism.


    >>Many people do not want to take the gamble and invest in stocks. Many just want the insured accounts.<<

Sounds like these many people you speak of 'gamble' that their insured accounts will keep giving them sufficient interest to live off it ... Well their gamble is not working out for now !


Stormy,

    >>Time to re-finance current loans (mortgage) right???<<

Indeed. Those who are paying higher mortgage rates might want to look for deals to refinance at lower rates.

- SVG

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Comment #6 by SVG (anonymous) posted on
SVG
 

Readers,

I was expecting this cut.

I send a note to Provident for opening a certificate (16mo 5.01% special) yesterday. I hope that they honor my request of yesterday.

And I opened certificate @ PenFed (5yr 5%) in the morning. Both sites are still showing the same rate.

I wanted to open a CD @ Ascencia also, but they were quite quick to pull down their rates ...

- SVG

 

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Comment #7 by Anonymous posted on
Anonymous
Thanks, Banking Guy. It would be a great help if you could post institutions with decent rates but also with the best protection periods. This for those of us who might have money within a week or two, but have nothing to invest today. Institutions that will lock today's rate for a while after we apply, that will protect the current rate for a bit, are very important right now. Today's rate decrease is a real kick in the head for savers.

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Comment #8 by Anonymous posted on
Anonymous
rate cut affects inflation too. I don't know other places in US, but in Bay Area, CA, inflation is another issue.

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Comment #9 by Anonymous posted on
Anonymous
which rate is better at this time? 5% 5 years or 5.25% 8 months.

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Comment #10 by Anonymous posted on
Anonymous
To the first poster, there are still higher rates out there in the form of reward checking accts., but you will have to meet the requirements in order to reap the benefits of a higher rate. Based on your post I doubt you will even think about having to make 10 debit card transactions to get the high interst rates that you feel like the banks should be obligated to give you as a customer. I guess you have to give a little to get a little.
If I give you money, will you give me a higher interest rate on my money than what you are making on your money. I think not!!
So what is wrong with banks wanting to look out for their best interest. Banks are really business if you did not already know that. They are there to make money just like you and me.
I have heard about a bank in India that will give you a micro loan of about $15 if you are deperate
By the way thanks bank guy. I just opend up the rewards checking acct at Bank of Choice in Colorado which pays 6.03% APY on up to $35,000 if you meet the requirements. Just proof that there are rates even better than the 5% that the first poster wants to be quaranteed. Why settle for less

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Comment #11 by Bozo (anonymous) posted on
Bozo
Well, we saw this coming, right?

My wife wondered why I was so frantic to get my 24 month rate locked at Alliant last Friday. Also, a big "phew" on locking my 10 year rate at KeyDirect (5.75%). Of course, when my next CD at Patelco comes due in April, at this rate (no pun intended), I'll probably have to pay someone to hold my money.

My Mom, who is 92 and has the bulk of her money in CDs and T-bills, is going to be pinched. She may actually start to have to spend some of her interest (grin, she is such a tight-wad).

Looks like the "bad old days" of ****ant interest rates are here again. Well, might spell good news for those re-financing in the next year or so.

Good luck, and happy laddering.

Yours,

Bozo

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Comment #12 by freeto (anonymous) posted on
freeto
I dont think the comment of wanting 5% guaranteed is so out of line. Maybe the government should subsidise saving. Bailouts for subprime mortgage holders and lower rates for borrowers is a form of subsidy also. The American government chastise people for not saving when the savings rate is at or less than the inflation rate. Then want to offer us $800.00 to spend to help stimulate the economy.

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Comment #13 by Anonymous posted on
Anonymous
I am the first poster and appreciate the replies.

Yes, of course what you are saying is correct. And I already knew that. I was just venting frustration and expressing a little wishful thinking. I have 4 (yes 4) elderly relatives who only live off the interest from FDIC insured savings/CD's. They truly get hurt by these big rate cuts. And these folks are not the type to want to place their money in higher-risk stuff like stocks. Yes, Rewards Checking is a possible alternative, but it is widely assumed that this whole Rewards Checking thing won't last very long, regarding such high rates. Most polled would say those rates will fall, as well, and probably sometime in 2008. And maybe some older folks might have a little harder time doing the whole 10 debit transactions per month, etc.

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Comment #14 by Kevin (anonymous) posted on
Kevin
first poster,

If you and your elderly friends you speak of really do live off of the interest in bank accounts then I feel bad for you. Not because of unfairness but because of your bad decision. If you assume 4% inflation every year and at max 7% interest from CD or MM account then you are really loosing money. You are only making 3% return but you are being taxed for the whole 7% you have made, paying in affect a wealth tax which cuts into your 3% profit. Ouch.

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Comment #15 by SVG (anonymous) posted on
SVG
 

First Poster,

    >>I have 4 (yes 4) elderly relatives who only live off the interest from FDIC insured savings/CD's. They truly get hurt by these big rate cuts.<<

Often times we make decisions that turn out to be wrong when the situation changes. I am sure many have no time/money to take a different course. Unfortunately such folks have to live-with the decisions they have made. You and your elderly relatives have my sympathy.

Sure your relatives will get hurt by this rate cut, but I'm sure there will be countless others who will get saved by this rate cut. Those who are on the brink of losing their homes might be able to retain their home.

- SVG

 

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Comment #16 by SVG (anonymous) posted on
SVG
 

freeto,


    >>I dont think the comment of wanting 5% guaranteed is so out of line. Maybe the government should subsidise saving.<<

In a way US government already does it! T-Bonds, T-Bill, T-Notes are all products that come with government guarantee.


    >>Bailouts for subprime mortgage holders and lower rates for borrowers is a form of subsidy also.<<

I guess is a very common misconception. Rate set by FEDs is applied uniformly to everyone. Thers is no prefretial treatment for 'subprime' borrowers.


    >>The American government chastise people for not saving when the savings rate is at or less than the inflation rate. Then want to offer us $800.00 to spend to help stimulate the economy.<<

Err ... You make it sound as if this thing called Government is some external entity. But this government is you and I and all our fellow citizens. If you don't like Government, then you have the power to change it. Come November, you can use it!


- SVG

 

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Comment #17 by Anonymous posted on
Anonymous
It just doesn't make sense to save money. The government wants the middle and lower class to be in debt and owned.

Why do I feel pistol whipped and thrown in the ditch?

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Comment #18 by Anonymous posted on
Anonymous
Wasn't it artifically low interest rates that brought on the sub-prime disaster in the first place?

Now, the Fed is repeating it!

Of course, it's an election year, should have expected it.

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Comment #19 by Anonymous posted on
Anonymous
"
Wasn't it artifically low interest rates that brought on the sub-prime disaster in the first place?"

Yep, and instead of fixing problems, they just delay them and pass the buck further into the future.

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Comment #20 by Anonymous posted on
Anonymous
I moved here from another country and I never understood why that americans don't want to save. Now I do.

Chinese government had lowered the tax rate on deposit interest to 5% last year in order to cool the stock market. And they already have one of the highest saving rate. Most of us in the US pay over 25% on interest and dividends.

1
Comment #21 by Anonymous posted on
Anonymous
To those who rely on savings accounts it is a tough situation. For me, I am saving for a house to buy in the next 12months or so. What I am doing is looking at alternatives such as CDs (possibly laddered) or municipal bonds (which are often tax-exempt for some states). These are things I am trying to learn more about.

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Comment #22 by Anonymous posted on
Anonymous
Indymac bank cut its 7 month CD rate to 5% today.

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Comment #23 by freeto (anonymous) posted on
freeto
Too bad I dont like any of the candidates.........On another point........Three cheers for Banking Guy. This site has helped me tremendously.

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Comment #24 by Anonymous posted on
Anonymous
UmbrellaBank's Pot O' Gold Money Market account, originally down to 4.90% a couple days ago, has been lowered again to 4.65%.

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Comment #25 by Anonymous posted on
Anonymous
virtualbank, ing, m&t dropped their rates

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Comment #26 by Anonymous posted on
Anonymous
To anonymous who is saving to buy a house in the next 12 months. Don't buy stocks or bonds with money you are going to use in the short term. I consider 12 months to be very short term. I don't know what your income or tax rate is but generally speaking the extra interest is not worth the risk for 12 months. Keep your money in savings or short term cd's so when the deal of a lifetime comes along you are ready to pounce on it. That deal will probally show up in the next 12 months if it is not already here. I am also living off of interest and dividends and think stocks and muni bonds are great but not for the short term. Good luck in getting you house.

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Comment #27 by Tyson (anonymous) posted on
Tyson
There has been a lot of talking about the banks lowing interest rate son credit cards but increasing the fees. I have read an article that said that now is the best time to apply for credit cards but I am not sure. The whole situation seems to be very unstable.

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