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Time for Savers to Speak Up

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Time for Savers to Speak Up

The Labor Day weekend is the traditional starting point for general election campaigns so this is a good time to let our representatives know about how savers have been unfairly punished. A reader just emailed me her thoughts and recommendations on this issue. Here's an excerpt from her email:

I am simply outraged that we, as savers, (the bankdeals blog followers), are just sitting back and not expressing our outrage about being shortchanged by the Federal Reserve Board, including Ben Bernanke, and his wish supposedly to help the economy by helping banks and mortgage borrowers by giving them a better deal --- refinancing --- at our expense.

[W]e all need to express our own personal feelings on the matter of "interest on our deposit accounts" literally being "stolen from us" by the Federal Reserve Board headed by Ben Bernanke in the name of helping the economy. My spouse and I have worked hard for many many years and just as we are on the verge of retirement, we get hit with the bill for all the excesses of a younger generation who has led the so-called "good life" enjoying everything. Now, we have to take less on our savings so they can save more on their mortgages to try to get out of debt. We have no debt and we are told we have to pay the price for their excesses.

This is wrong! Plain and simple. We need to tell our representatives in Congress what we think!

There have been the occasional commentary from the media with this sentiment. In my February blog post I reviewed some of these. MarketWatch's chief economist gave his opinion in this commenatary:

Since the banks are apparently in good financial shape, it's time for the Fed to consider the needs of the silent majority -- the nation's savers -- and raise rates so that they can become healthy, too

The syndicated columnist Scott Burns described the problem in this Boston Globe article:

our totally unrepentant financial system is being rebuilt while savers are punished with yields that guarantee their savings will lose purchasing power.

It's not only an issue of fairness. Many argue this policy of ultra low interest rates is actually bad for the economy. There's even one FOMC member who thinks this way. Thomas Hoenig has been voting against this near-zero rate policy all of this year. This Kansas City Star commentary reviewed the economic problems with ultra low rate policy. Here are some excerpts:

Hoenig sees that the Fed’s near-zero key interest rate puts the next dangerous bubble just over the horizon.
[...]
Obviously, savers are getting practically no return on savings. Thus, many consumers have less to spend without eating into principal.
[...]
Similarly, pension plans, foundations and trusts have to make up for slack returns by making higher contributions.
[...]
Perhaps the most perverse effect is with banks. They can borrow from the Fed at the near-zero rate and make an adequate return by investing almost risk-free in government or investment grade debt

Tell our representatives what we think!

As the reader who emailed me stated, we can let our government know what we think. The US House has a Write Your Representative Service. And here's how to contact your senator. The Federal Reserve has this contact form which allows you to send a message to the Board Members.

I still think the US needs an organization like the UK's Save Our Savers which campaigns against any "issues that are unjust and unfair to savers." It's probably going to take an organized movement like this to make real progress.



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Comments
21 Comments.
Comment #1 by 51hh posted on
51hh
Politics/protests are never ending and lead nowhere.  It is up to every saver to strategize her/his own savings plan for the near-term and long-term, taking today's economic climate into full considerations.

Near-term: Rewards Checking complemented with CDs

Long-term: Diversified portfolio with equity and fixed investment vehicle

Stop complaining, take actions, and enjoy life!

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Comment #3 by 51hh posted on
51hh
Hey AG,

Not really (holiday).  The economy will get tougher for the short-term.  But this too shall pass.

BR.

1
Comment #4 by Anonymous posted on
Anonymous
Rewarding borrowers at the expense of savers has been going on since Greenspan lowered interest rates in the early part of 2002, so I am not sure why all of a sudden people have just woken up to the pilfering of our interest income.  I have been "dancing" back and forth, trying to eke out an extra few basis points by constantly moving money around from bank to bank.

Turns out the best investment I made was the US EE Savings Bonds purchased in the early 1990's that at least carried a 4% minimum.  The US I Savings Bonds purchased in the late 1990's have provided me 3.5% fixed rate inflation.  Thank goodness the bonds represent 50% of my assets, which at least covers my yearly budget, meaning I do not have to eat into principal.  No thanks to the Federal Reserve, but rather thanks to luck, Divine Intervention, Karma, or whatever other plausible reason.

8
Comment #5 by Anonymous posted on
Anonymous
I would rather make 2 % with 2-3 % deflation a year than 5% with 3% inflation.

3
Comment #6 by Anonymous posted on
Anonymous
really 5, and what tax, bills, and everyday stuff you buy has gone down by "deflation"? 

you must actually belive what you hear from uncle ben, or on CNBC.

 

 

8
Comment #7 by Anonymous posted on
Anonymous
Health care costs certainly aren't deflating.

3
Comment #8 by Anonymous posted on
Anonymous
Greenspan was a idiot and most likely still is.  Bernie-achey is the same.

The Fed should set their rate at or near 5% --NOW.

4
Comment #11 by Anonymous posted on
Anonymous
I think that deflation is where companies cannot sell their product so they cut their price and the buyers think that a better price will come along so they wait for better prices. So no one has a job to replace the product that no one purchased.  Result is a continual downward economic spiral.

1
Comment #12 by Anonymous posted on
Anonymous
To #4. Tax policy has always been against the wage earner and the person using a bank for savings. Those who are in the market outside of deferred accounts do not pay the same % of taxes as others. Those that have their 401K and IRA in the market pay full income tax, Those that are in the market outside of their 401K or IRA pay much less in taxes. In my opinion 401K and IRA money should be in fixed income only. If you want to play in the market do it out side of the deferred income accounts where you will pay less taxes on winners and have tax write off on those investments that lose money.

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Comment #15 by TAMI LAWLESS (anonymous) posted on
TAMI  LAWLESS
TO MR KEN I TAKE HUMBRAGE AT THE COMMENT OF 14 COUNTLESS OTHER PEOPLE COMMENT  BUT YET WHEN I DO I GET A RESPONSE THAT I AM A TROLL BASED ON WHAT? DOES 14 KNOW WHO I AM? THIS PERSON /PEOPLE DO NOT EVEN HAVE THE DESENCY TO IDENTIFY THEMSELVES. YOU SERVE A VALUE TO THE COMMUNITY ONLY TO HAVE THE INTEGERITY OF YOUR SITE AS WELL AS ALL THE OTHER NICE PEOPLE WHO LEAVE COMMENTS TARNISHED. THE ONLY WAY THAT THE SITE CAN IMPROVE IS TO FIND A WAY TO VANQUISH THESE MISGUIDED SOULS. SHOULD THIS COMMENT BE REMOVED IT WILL SPEAK VOLUMES     

2
Comment #17 by Anonymous posted on
Anonymous
TO: My spouse and I. AMEN! 

1
Comment #18 by Inforay posted on
Inforay
Thank you very much for this piece.  I have previously urged readers to write to the federal reserve board regarding the ultra low interest rates.  They want the economy to recover but how can people on fixed incomes spend when they get no return on their money?  Bernanke and his collegues want people to get into "long term investments" by which he means stocks so that those prices will rise and it looks like the economy is doing well because the stock market is doing well.  They are simply maneuvering the prices of stock and helping banks by lending to banks at such a low rate.  To all your readers, please either call the federal reserve at 202-452-3204 or e-mail them at www.federalreserve.gov/feedback.cfm and let them know how you feel.  As Michael Crowley wrote in his article in the Reader's Digest, "Reckless spending fueled the crisis. Now anyone who saved is being punished."

3
Comment #24 by Jennie posted on
Jennie
What does Troll mean anyway?

2
Comment #25 by Anonymous posted on
Anonymous
Every good and informative board usually finishes up with a troll on site.   Even if you ignore it, it will not go away.  The least successful boards usually stay minus such a creature.

4
Comment #26 by Anonymous posted on
Anonymous
A troll is an extremely ugly creature that lives under bridges and eat cats.  They are also known to be deathly afraid of canaries.

3
Comment #28 by cactus posted on
cactus
Article from NYTimes to refer to in letter to Senators and House member

http://www.nytimes.com/2010/08/22/business/22gret.html?scp=3&sq=savers&st=cse

"Sharply cutting interest rates vastly increases banks’ profits by widening the spread between what they pay to depositors and what they receive from borrowers. As such, the Fed’s zero-interest-rate policy is yet another government bailout for the very industry that drove the economy to the brink. "

 

4
Comment #32 by Anonymous posted on
Anonymous
Deflation would be a very good thing.  It is not accurate to say that deflation is always not desirable.  Is is not desirable only to people in debt.  THere was deflation in the us for more than 2 decades in the 1800s and it was a good thing

2
Comment #33 by Anonymous posted on
Anonymous
The FED is trying to cause inflation, it is the only option they have to prevent massive failure by real estate owners, private and commercial.  They could care less about prudent savers.  This again is liberal Obamanomics in play here.  Take from the prudent taxpayer and give to whoever needs its.   I say boot em all out in Novemeber.  If your in your out!

2
Comment #37 by Anonymous posted on
Anonymous
Imat is a bit narcisstiistic.  The rest of do care about the effects of inflation/deflation.

2
Comment #43 by Anonymous posted on
Anonymous
The FED has lost control!  Commodities are going through while the dollar plummets.  

1
Comment #44 by Inforay posted on
Inforay
I think it is worse than the FED losing control.  I think they have actually hindered economic recovery  by interfering and keeping interest rates artificially low.  The cost of borrowing should be left to demand and supply for money and not by an artificial lowering or raising of interest rates.  Consider that savers who may have retired with $1 million and were anticipating interest rates of 5% or 6% on 5 year CDS ($50,000 to $60,000 annually), are now left with only $20,000 annual return even if they invest in 5 year CDs. They cannot afford to spend and there can be no recovery.  That is thanks to the Federal Reserve.  You don't see the interest rates on credit cards coming down; student loans, even subsidized are still at 6.8%. The people hurt by the low interest rates are savers because banks have no incentive to raise money or pay even a small amount of interest because they can borrow from the feds at zero percent and then get 3% or so by placing the money in Treasuries -- a cool proft without any risk!!  Everyone reading this excellent board should protest the low interest rates.  Additionally, Bernancke and his cronies should be fired from their cushy jobs.

1