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NYTimes Article: At Tiny Rates, Saving Money Costs Investors

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I feel a little bit uneasy about pointing out this recent NYTimes article, At Tiny Rates, Saving Money Costs Investors, during the holidays. Since these types of articles are not too common in the mainstream media, I decided it was worthwhile of a post. I hope this doesn't hurt your holiday cheer.

Here's a noteworthy quote by Bill Gross who was interviewed in the article:
"What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread," said William H. Gross, co-chief investment officer of the Pacific Investment Management Company

And here's what Bill Gross has to say about future interest rates:
"What the futures market is telling me," Mr. Gross said, "is that in April 2011, these savers that are currently earning nothing will be earning 1.25 percent."

I'm afraid it may take a while before we see some decent deposit rates.

Thanks to the reader who mentioned this article in the Bank Deals Hub. Also, thanks to Sam at BestCashCow who has some well-written commentary on this article. He makes a good point that we savers need to shop for the best rates and make sure we "Reward the banks that are willing to pay a bit more for your hard-earned cash." And don't forget credit unions.

For recent deals that I've reviewed, please refer to my last weekly summary.

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Comments
35 comments.
Comment #1 by Anonymous posted on
Anonymous
All these savers (including the savers on borrowed money from 0% credit card offer and HELOCs) are only praying for slightly higher rate on a daily basis (burying their heads in the sand). It is sickening that people are praising the 2% APY offerors like Alliant/Incredible as the "high yield" accounts and work their tail off to get in and congratulate one another of being smart; simply pathetic!!

We need to look at the big paciture that Ken and this article rightfully pointed out: YOU WILL NOT SEE HIGH RATE FOR THE YEARS TO COME. And plan for it.

Thanks, Ken!

1
Comment #2 by Anonymous posted on
Anonymous
It's a very sad situation for savers, indeed.

I can remember years ago when savers were rewarded by having a certain amount of interest earnings tax free. The government did this to encourage people to save. Today the Feds are virtually penalizing people for saving.

1
Comment #3 by Anonymous posted on
Anonymous
The savers are being punished for the housing bubble. Ben Bernanke said it indirectly in many of his FOMC meetings, not explicitly but in his mambo jumbo twisted lies.
His idea is to flood the world supply of printed Dollars, trash the Dollar, create inflation, destroy our wealth and savings and to proclaim everything is in balance now and I saved the world of depression and the financial catastrophe.
Wall street sends him reports what they want and how much and when to raise the rates. His dual purpose is diminished since he is biased on the side on the banks and wall street. Congress buys into his lies when ever he testifies, spreads rosy pictures to justify his imaginary economic plans and made the savers irrelevant since the banks can borrow at near 0% interest rate from the FED.
If he is worried about the main street, he would have not allowed deficits to be run a mock and covered with funny money.
This administration is trying to create prosperity with borrowed and printed money, so there is need the interest rate to be very low.
We are coming to a point when the interest rate on the national debt will exceed the collected taxes in a year or two. When that happens, your and my money will be nullified and the interest rate, no matter how high, can not cover the lost value of the money.
Irresponsible Government and their policies have proven that we the people do not have a say about it nor can count on our savings or wealth in future.

1
Comment #4 by ichaelm (anonymous) posted on
ichaelm
I cannot understand how Joe Park, the retired accountant that the article quoted, ever passed his CPA licensing exam, or worse yet, how he made it to Best Investing's advisory board. If a CD paying 2% matures and you buy a new one which pays 1.50%, true, the new CD is paying half of a percent less than the first one did, but you're not earning half of a percent less as Mr. Park stated, you're earning 25% less. 1.50/2.00 = .75 If you're earning 75% of what you previously were earning, then you're earning 25% less. I can't believe that the Times/missed the error!!

1
Comment #5 by Anonymous posted on
Anonymous
Bill Gross is my hero. I just wish I had enough money to invest with PIMCO.

1
Comment #6 by Doug (anonymous) posted on
Doug
Look at the bright side: if interest rates rise by 1.25% over the next 16 months, maybe the top RCAs will once again pay over 6%.

1
Comment #7 by Anonymous posted on
Anonymous
8:07 AM:

I do not think that quote is wrong. It is a matter of absolute APY return cut (as Joe stated and meant) and relative return cut as you calculated.

1
Comment #8 by Anonymous posted on
Anonymous
9:50 AM: You are assuming that some RCAs would last that long without closing:-)

By 2011, RCA may be a legacy term.

1
Comment #9 by Anonymous posted on
Anonymous
.


>> "What the average citizen doesn’t
>> explicitly understand is that a
>> significant part of the
>> government’s plan to repair the
>> financial system and the economy
>> is to pay savers nothing and
>> allow damaged financial
>> institutions to earn a nice,
>> guaranteed spread," said William
>> H. Gross

Hmm ... Perhaps William H. Gross is grossly underestimating the understanding an "average" citizen saver has.

I suspect the average citizen saver understands implicitly and explicitly all too well 1) that s/he is getting close to zero for her/his savings, and 2) that the net effect of massive liquidity that her/his government has created is to save the banking/finance industry so that s/he can survive in the long term.


>> "What the futures market is
>> telling me," Mr. Gross said,
>> "is that in April 2011, these
>> savers that are currently
>> earning nothing will be earning
>> 1.25 percent."

Err ... One wonders if back in 2007/2008 the futures market was in communication with Mr Gross at all. Did the futures market tell Mr Gross of the coming financial turmoil?

Mr Gross manages Pimco Total Return fund since 1987, and when one looks as the chart of PTTRX, one does not get a feeling as if the futures market communicated to Mr Gross in 2007/2008.

http://finance.yahoo.com
/echarts?s=PTTRX#chart1:symbol=pttrx;
range=my;indicator=volume;
charttype=line;crosshair=on;
ohlcvalues=0;logscale=off;
source=undefined


Perhaps Mr Gross was not all that well informed back in 2007/2008 than what he is today! :-)


.

1
Comment #10 by Anonymous posted on
Anonymous
Does anybody thinks Mr Gross cared for his clients?
I think not, he makes the money by selling and buying all the time and the turnover created his commissions and profits.
He is not any better then you and I when it comes to picking or betting in futures. The difference is that he uses somebody else money and he pay himself first.
He risks nothing of his own and like all money managers takes the credit for the food times. If his picks do poorly he blames the current economy and says that he has saved you from even bigger loses if you did not invested with him.
We have all heard those statements before and if you were stupid enough to believe it, you have been taken for a ride.
Back to Bernanke (print mi a Dollar guy), he is not any better then a sleazy politician who swore to protect the wall street and nobody else. He is in czar's position to wipe us all (the savers) to a bare bone.

1
Comment #11 by Anonymous posted on
Anonymous
Gross talent/views are grossly over-rated.

He is just for his agenda and once in one hundred times, he happened to be correct; just like a bad watch.

And he tends to lose his place and think he is a smart ****; since enough dumb people did not see through him.

1
Comment #12 by Anonymous posted on
Anonymous
One issue the NY Times article does NOT address is the effect of this decrease in wealth on the next generation. Someone in their 80's or 90's can probably just spend down their assets. No one lives forever, after all. But then there is nothing left for the kids to inherit. And these are the kids who have to continue supporting social security and pay off the huge debts incurred by the bailouts.

1
Comment #13 by Anonymous posted on
Anonymous
.


>> Does anybody thinks Mr Gross
>> cared for his clients? I think
>> not, he makes the money by
>> selling and buying all the time
>> and the turnover created his
>> commissions and profits.

Err ... No. That's totally wrong.

The mutual fund (Pimco Total Return) and the other funds that William H. Gross manages has what is called as expense ratio that is built-in within the fund's NAV (net-asset-value). This is what pays William H. Gross. Also William H. Gross manages the PTTRX is such a way that turnover will be as little as possible.

You are, I'm afraid, completely wrong on both the counts of commission and turnover.


>> He is not any better then you
>> and I when it comes to picking
>> or betting in futures. The
>> difference is that he uses
>> somebody else money and he pay
>> himself first.

Again using somebody else'e money sounds a little too harsh. The mutual fund (PTTRX) is not something that people are forced to invest into. People invest into this at their own free will, because they believe that William H. Gross will be able to put their money to use and will be able to return them profit. In return they are completely willing to pay him for his management.


>> He risks nothing of his own and
>> like all money managers takes
>> the credit for the food times.

Hmm ... Nope ... Yet again you are totally wrong.

Time and again William H. Gross has invested his personal wealth in several of the funds he manages. Therefore he definitely risks his own money. ( Search various Form 4 filings with Securities and Exchange Commission and you will find that William H. Gross has lots of his wealth allocated within the funds he manages. )


>> If his picks do poorly he
>> blames the current economy and
>> says that he has saved you from
>> even bigger loses if you did
>> not invested with him.

Really? ... Can you post some links that sustain what you've written above?


>> Back to Bernanke (print mi a
>> Dollar guy), he is not any
>> better then a sleazy politician
>> who swore to protect the wall
>> street and nobody else. He is
>> in czar's position to wipe us
>> all (the savers) to a bare bone.

Err ... And who, may I ask, has directly and indirectly put the Czar's crown on his head? Would the guy/gal you see in the mirror has something to do with this?


Anyways ... like I wrote before, perhaps Mr Gross is equally informed (well or ill ... depends) in 2007/2008/2009. Personally I have made use of William H. Gross from time to time at my own free will and I shall continue to use PTTRX when it suites me.

.

1
Comment #14 by Anonymous posted on
Anonymous
To Anonymous, at 2:16 PM, December 26, 2009.
You my friend are twisting the truth of the post you are commenting on.
You said:
"Time and again William H. Gross has invested his personal wealth in several of the funds he manages. Therefore he definitely risks his own money. ( Search various Form 4 filings with Securities and Exchange Commission and you will find that William H. Gross has lots of his wealth allocated within the funds he manages. )"
Really, do you know how he uses somebody else money, I do, he forms a mutual fund let say ABC fund, he puts very small leveraged seed money in it and then he opens the door for the mutual herd crowd.
When money poor in the value goes up, he cashes his shares at the top and move to the next project.
He never actually risks his money on anything he peddles, that is the beauty of being the fund manager, creator, consultant or what ever title you want to give him. Therefore, he never risks his money. Form 4 filings with SEC is just a smoke screen. Remember Bernie Madoff, he fooled SEC for decades.
A manager of a fund can put money couple of days before reporting for that fund makes the report and moves the money out couple of days after reporting, to the next fund and makes it appear that he had own avery fund he manages.
You are being fooled also by stating and defending William H. Gross, by not knowing all the facts of his operations.

1
Comment #15 by Anonymous posted on
Anonymous
To 2:16
If this statement is true like you said:
"""Anyways ... like I wrote before, perhaps Mr Gross is equally informed (well or ill ... depends) in 2007/2008/2009. Personally I have made use of William H. Gross from time to time at my own free will and I shall continue to use PTTRX when it suites me."""
You are outright liar. No proof of your self praising blah, blah, blah. If you stand behind a wall street-er, you are a wall street-er and you don't belong among us the savers. Your comments are biased and demeaning to all of us.

1
Comment #16 by Anonymous posted on
Anonymous
Hey, 2:16 guy, what you mean when you said {{Err ... And who, may I ask, has directly and indirectly put the Czar's crown on his head? Would the guy/gal you see in the mirror has something to do with this?}}.

The comment you are replying to is for Bernanke, and none of us has anything to do with his appointment, got that!

1
Comment #17 by Anonymous posted on
Anonymous
Gross is a human being as the rest of us, who can not predict the market. The fact that he alwasy brag about it and speak in a prophetic manner indicates that he is simply an idiot, who happened to be correct once in a millino times!!!

If you have to pick an idol, please pick Warren Buffet instead; who confesses that nobody can predict the market 100% of the time.

1
Comment #18 by Anonymous posted on
Anonymous
To 2:16
You said:
___________________________________
The mutual fund (Pimco Total Return) and the other funds that William H. Gross manages has what is called as expense ratio that is built-in within the fund's NAV (net-asset-value). This is what pays William H. Gross. Also William H. Gross manages the PTTRX is such a way that turnover will be as little as possible.
___________________________________

You reasoning is faulty. For starters, there are no realized gains without sales. And every sale brings money for more buy trades.
If he didn't trade as much as you imply then there would be no annual gains and there would be no need for 12b filing and the expense ratio will be very small and the NAV will be at par and bogus.
The comment on which you were commenting to, makes more sense then your reply to it.
NAV does not pay to your buddy Gross, the numerous trades and commissions and the new money coming in created his outrageous bonuses paid in stock for that fund, that is wbat made him rich.

1
Comment #19 by Anonymous posted on
Anonymous
.

>> Hey, 2:16 guy, what you mean when
>> you said {{Err ... And who, may I
>> ask, has directly and indirectly
>> put the Czar's crown on his head?
>> Would the guy/gal you see in the
>> mirror has something to do with
>> this?}}.

>> The comment you are replying to
>> is for Bernanke, and none of us
>> has anything to do with his
>> appointment, got that!

Really? None of you? Not even indirectly? ...

Err ... actually it is you who do not get it. Allow me explain.

Chairman Bernanke is appointed by the President of the US (who is elected directly by the guys/gals in the mirror!) ... The very same Chairman Bernanke;s appointment is confirmed by the Senators (who again are directly elected by the guys/gals in the mirror!) ... therefore the guy/gal that you see in the mirror is indirectly responsible for putting the crown on Chairman Bernanke. No point in denying personal (albeit indirect) responsibility in a democracy like ours! :-)

.

1
Comment #20 by Anonymous posted on
Anonymous
To 6:01 PM, you must be delirious or had to much to drink for saying such stupid chain of events.

If we follow your logic, then nobody is to be blamed at the top of the Government because we the people elected those nimrods and they are off the hook, no natter what they do or don't do.

In that case, I blame you for all the bad economy out there and I blame you for the low interest rates and I blame you for everything I don't like about in this country, because you voted or you didn't voted for right President, Senator, House Rep, Governor, State stooges and so on, who appointed someone we don't like.

Case closed, go on drinking what ever you were drinking before posting your nonsense.

1
Comment #21 by Anonymous posted on
Anonymous
.


>> You reasoning is faulty. For
>> starters, there are no realized
>> gains without sales. And every
>> sale brings money for more buy
>> trades.

Nope ... My reasoning is completely sound. The shares of the mutual fund are always bought and sold to the mutual fund itself. Mutual Funds always maintain some cash position to cover any sale transactions. So almost always every sale is settled by using the cash position and it is quite rare that the mutual fund actually has to liquidate the underlying securities to meet a sale transaction.


>> If he didn't trade as much as
>> you imply then there would be
>> no annual gains and there would
>> be no need for 12b filing and
>> the expense ratio will be very
>> small and the NAV will be at
>> par and bogus.

William H Gross manages mutual funds that are Bond Mutual Funds, so most gains come from the interest that the underlying bonds pay. ( As an example, Bill Gross's Mutual Fund may own a Municipal Bond - say a water bond that has term of 10 years. So this bond will pay interest say every year. This interest will be the gain. So you see, when the water bond it bought it will keep earning gains year after year after year, without any need of trading - except the initial buy trade. After 10 years the bond will mature and the municipality will hopefully pay the full principal, and that's that! )


>> NAV does not pay to your buddy
>> Gross, the numerous trades and
>> commissions and the new money
>> coming in created his
>> outrageous bonuses paid in
>> stock for that fund, that is
>> wbat made him rich.

Nope ... you're quite wrong. The expense ratio that is built into the NAV is what pays (my buddy?) William H. Gross. BTW I never ever consider William H. Gross as a buddy, but rather I consider him as hired-hand. ( I have no time/inclination to sift thru and analyze 1000s of bonds offered by various Municipalities, Small/Mid/Large businesses. My hired-hand has the time/inclination to do that. And I am happy to pay him the expense ratio as compensation. )

Potentially this is no different than me going to Firestone and getting my vehicle maintenance done. I have no time/inclination to go over lubrication / starter / fuel-injection. My hired-hand mechanic at Firestone does that. And in return I am happy to pay him for as compensation.

Now coming to what made William H. Gross rich. ... Well the fact is he is reasonably good as what he does. I suspect the best business for getting rich (besides being a politician) is to manage money reasonably well. That's what I guess has made William H. Gross rich.

So ... William H. Gross has chosen a very lucrative profession for himself and that's what has made a big difference. A mechanic no matter how fabulous he is at diagnosing trouble is not in a very lucrative profession. A money manager who is reasonably well at analyzing the bonds is in exceptionally right profession to make it big!


.

1
Comment #22 by Anonymous posted on
Anonymous
.


>> In that case, I blame you for all
>> the bad economy out there and I
>> blame you for the low interest
>> rates and I blame you for
>> everything I don't like about in
>> this country, because you voted
>> or you didn't voted for right
>> President, Senator, House Rep,
>> Governor, State stooges and so
>> on, who appointed someone we
>> don't like.

Excellent ... we are getting somewhere!

So blame me ... and yourself ... and your colleagues (if you have any) ... and your friends (if you have any) ... and your living relatives (if you have any) ... and people from your district ... and people from your city ... and people from your state .... and people from your country.

Exactly as I implied earlier, there is absolutely no point in denying personal (albeit indirect) responsibility for each and every action that your/our elected government takes in this democracy.


.

1
Comment #23 by Anonymous posted on
Anonymous
to 6:29 PM,

Wrong again, but I will not engage you in your irrational explanation of the chain of events. Most of us know much better then your basic knowledge of investings.

1
Comment #24 by Anonymous posted on
Anonymous
When two argue like that, there is no winner.

1. Mr. Gross has spoken/prophesy too much and too often in public and he is bound to eat his words sometimes.

2. The condition of this economy (and any economy) is too complex to blame any sinle person or all of us. Let's hope that 2010 will be a better year; with less turbulence and more peace (hint, hint).

1
Comment #25 by rjm (anonymous) posted on
rjm
Well, some of us need to consider putting more of our money in the stock market.

Sure, there is extra risk, but also the potential for extra rewards.

No guarantees but I suspect many of us here...on this board could probably use a little more exposure to stocks with current rates where they are.

Obviously, hindsight is 20/20 and if I had it to do over again, I would have been buying stocks much more agressively in Nov & March.

But, those levels may not come back in our lifetimes.

1
Comment #26 by Anonymous posted on
Anonymous
With unemployment so high, interest rates need to be low in order for the banks to lend out money to companies to invest and hire more workers. If deposit rates rise, then lending rates must also rise along with them and that would put a damper on borrowing. I don't like this low interest rate environment (especially because I have no debts now), but a lot of businesses borrow money in order to operate their business and hire workers. Many business owners (not referring to banks) don't have big wads of cash to pay all of their operating expenses all of the time.

1
Comment #27 by Anonymous posted on
Anonymous
To Anonymous who posted on 7:18 AM, December 26, 2009

I think you are referring to the "All Savers Account" that was created back when Reagan was president. The account allowed a certain amount of interest to be tax free per SSN per year. It was enacted because of rising unemployment, a recession, and high inflation. A lot of the inflation was triggered by the 1973 Arab Oil Embargo (remember those long lines at the gas pump?) and the 1979 Iran hostage crisis.

1
Comment #28 by Anonymous posted on
Anonymous
.


>> 1. Mr. Gross has
>> spoken/prophesy too much and
>> too often in public and he is
>> bound to eat his words
>> sometimes.

True ... And like any other person William H. Gross has constitutional right to speak his mind in public. Let us face it, the fact is the periodicals print/report what William H. Gross has to say, because they must be finding it interesting/valuable for their readers (including obviously the Banking Guy here).

So ... no problem in hearing out what William H. Gross has to say, and then of course getting back and checking how well or otherwise PTTRX did and drawing conclusion whether or not the futures market was in communication with William H. Gross (ever). :-)


>> 2. The condition of this
>> economy (and any economy) is
>> too complex to blame any sinle
>> person or all of us.

Yes and no.

Yes - condition of economy is complex.

No - Every single person - which is all of us - make financial transactions that has effect on the overall economy, so the blame (if any) lies with each and every one of us. ( Every person's action/in-action has a teeny-tiny butterfly-effect in this complex economy. )


>> Let's hope that 2010 will be a
>> better year; with less
>> turbulence and more peace
>> (hint, hint).

Indeed ...


.

1
Comment #29 by Anonymous posted on
Anonymous
.


>>No guarantees but I suspect many
>> of us here...on this board could
>> probably use a little more
>> exposure to stocks with current
>> rates where they are.

Maybe ... Personally I don't believe stocks might be right at this point ... but I sure like some of the long and mid term US Treasury Bonds.

Recently TLT and IEF have taken a tumble, and it is likely they will recover. Personally I plan to buy both TLT and IEF, if they fall a bit more next week.

TLT's 30 day sec yield is 4.30% and IEF's is 3.17% ... Not too shabby at all.


.

1
Comment #30 by Anonymous posted on
Anonymous
The only conclusion, after reading all these posts, is that an education in economics is a must for all. So much incorrect and contradictory information is spread by lay people who have very little education in economics.

Everyone, please take more economics classes/courses for yourself so that you personally have a better understanding of how the entire system works, and not simply be mislead by superficial, one-sided, hyperbole spouted by ignoramuses. There are blind mice leading the lemmings. Don't you be a lemming.

1
Comment #31 by Anonymous posted on
Anonymous
6:51 AM etc.:

Come on, you don't think any people with a "normal" IQ would take these debates/discussions as lessons:-)

They are, at best, some entertaining inputs/noise.

For one, I have my own financial philosophy and investment strategy for my own money; and I am fully responsible for it. Not Gross, not Buffet, of course, not any points/posters in this forum...

1. I would never put near-term money (i.e., cash) into any stock market; only money that I would need after 5 or more years. Not even in this low-interest-rate environment.

2. For 401K money, I have my own well-tested strategy that is independent of the near-term market fluctuation. So, in a sense, I really do not care what the market condition is.

3. For cash (i.e., near-term money), I choose to put all in verious RCAs because low-rate savings account rate, low-rate non-liquid CDs, and risks of any bond funds. If RCAs go under 4%, I would use the cash to pay off my 4.75% mortgage (worth another heated debate; but hey, that is my decision).

For sure, only (mayb eless) 1% of the information here may be useful from my perspective; and that 1% serves only as an input to my overall portfolio.

In short, this forum is mainly for entertainment and socilazing.

The High-yield (i.e., depositaccount.com) information, on the other hand, is very useful for me; to search the best/most stable RCAs.

I can see you have some financial knowledge and, maybe, education. But my suggestion is do not trust anybody with your own money. Gross, is just Gross. Just like Peter Lynch, all are huamn beings with their own agenda and their own shortcomings. Trust only yourself!

Best,
7:09 PM

1
Comment #32 by Anonymous posted on
Anonymous
To:
Anonymous, at 6:51 AM, December 27, 2009.

Your a joke!

Believe it or not, us lay people do know and understand economics. We also know how the U.S. financial system works. Crooked as can be and us working folks are powerless to do anything about it.

Only the rich and powerful can be elected to office. Money talks and it takes a lot of it.

1
Comment #33 by Anonymous posted on
Anonymous
To Anonymous, at 6:51 AM, December 27, 2009.
If what you are implying is true, then all of those economists would have predicted and stopped the current economic downturn.
Your statement is not correct, the less we know about the economy the better we are.
Look who is running the country (the so called economists), they print money to cover a shortfall in the deficit.
They lend money to the crooked banks.
They buy bad mortgages.
They keep interest rate artificially low to help wall street.
Banks are not lending at such low interest rate (the risk is greater for them in low interest environment).
I can go on and on, so, the so called economists are not worth a penny in my eyes. Knowing economy is not the same as running a country. Or maybe they are illiterates like we are, hums!

1
Comment #34 by Anonymous posted on
Anonymous
I only took one course in Economics back in high school and I didn't find any tangible information that would apply to my daily life now. Much of it was theory spouting by people from the past. Since I don't control the monetary policy of this country having familiarity with microeconomics and macroeconomics would be worth much to me personally. Economics is a social science (along with subjects like psychology, sociology, anthropology, political science, history, philosophy) which is subject to varying opinions. People end up with different viewpoints on virtually any social science subject (for example, ranging from Freud is a genius to Freud is a stuck up guy).

1
Comment #35 by Anonymous posted on
Anonymous
Typo in the prior post.

I meant ...macroneconomics would NOT be worth much to me personally.

1