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Happy Holidays! Unfortunately, savers are not getting presents from banks. Rates continue to plummet. Some recent savings account rate cuts have occurred at GMAC Bank, OnBank, FNBO Direct, E*TRADE, Citibank and Capital One. Readers have reported being told that Alliant Credit Union will be lowering its savings account yield to 3.25% APY starting next month and PenFed will be lowering its CD yields next month (3yr to 3.94%, 4yr to 4.25% and 5 and 7yr to 4.50%).

Although GMAC Bank lowered its savings account and money market yields today, it's still offering a 4% APY 12-month CD. I have more details about GMAC Bank in my Wednesday post.

GMAC Bank's parent, GMAC, has received approval to become a bank holding company. According to the Washington Post:
The move gives GMAC access to new sources of funding, including a potential infusion of taxpayer dollars from the Treasury Department and loans from the Fed itself.

On other news, it has been reported that the FDIC is close to finding a buyer for IndyMac. I found this excerpt from this LA Times article interesting:
IndyMac's deposits have since fallen to $6 billion, as the FDIC has rid the bank of $6 billion in high-rate, brokered deposits and as customers pulled out another $6 billion in reaction to the bank's seizure by the government.

I guess those internet special CDs didn't amount to much in the total deposits. The question for those with IndyMac CDs is whether the new bank will choose to terminate the existing CDs instead of continuing the high rates to maturity.

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Anonymous   |     |   Comment #1
For every 1% drop in interest rate, we lose at least 20% of our interest earned. Combine all of the savings on deposit with the banks and you will get hundreds of billions lost in income. No stimulus package from the Government can match those losses. Lowering interest rates down to 0% will create worthless savings and lower the purchasing power of our money.

The Feds are trying to help the bad guys stay in business by destroying our hard earned dollars.

It is shame to call ourselves savers, because we are all losers now.
Tsunami Cid
Tsunami Cid   |     |   Comment #2
This is super depressing for savers.. Will the Fed even consider raising the rates in 2009?
Anonymous   |     |   Comment #3
Feds will not raise interest rates any time soon or at least until the bankers ponder for more bail out money. The banks will not stop crying as long as somebody is feeding them free money. Why should they, the suckers in Washington fell for the cheapest trick in the book and started printing money to serve the bad boys. The savers are irrelevant and we will lose most of our savings to high inflation after all of the dust is settled.
Anonymous   |     |   Comment #4
You are quite right about inflation. The challenge will be to find ways of keeping up with inflation, which will not be easy.

The reason the government has done what it has is that it perceives it to be the popular thing to do. Why did the government do nothing to regulate the mortgage industry when its actions created the housing bubble that resulted in the current economic debacle? The answer is very simple. It would have been very unpopular to apply the brakes to rising home prices when most homeowners were just thrilled that they were making money so effortlessly. We have a greedy country and now we're all paying the price.
Anonymous   |     |   Comment #5
Feds are always behind the curve, when it comes to interest rates.
They will wait 6-12 months to see how the things are and then they will act.
When inflation picks up, the Feds will wait and wait until becomes unbearable and or 1/2 of the dollar purchasing power is gone, before moving their finger and then, only marginally just to pretend that they are doing something about it.
I lost the faith in the FEDS.
gaelicwench   |     |   Comment #6
Congress needs to investigate why it is the BIG financial institutions have been sitting on those billions they were given. Why have they been so tight-fisted with loans and other kinds of credit [cards].

The auto industry have all been taken to task as to why they're struggling and on the brink of bankruptcy. Perhaps it's because said BIG banks are refusing to give auto loans. What gives....or perhaps, what gives NOT!
Anonymous   |     |   Comment #7
This is a nation of spenders and not savers. The Fed is more afraid of a recession than high inflation. With a recession (or depression) comes high unemployment and economic slowdown. That creates an unsettling situation that can reverberate across the fabric of this country.
Angelo_Frank   |     |   Comment #8
More bad news. WAMU, effective today, 12/27/2008, has lowered it's on-line 5 year CD from 5% APY to 4% APY.
Angelo_Frank   |     |   Comment #9
For those eligible to join, NAVY Federal Credit Union still posts the following for 5 year share certificates on their site 12/27/2008:

$1,000 min. 4.95% APY
$20,000 min. 5.10% APY
$100,000 min. 5.25% APY

Based on the present environment, odds are these rates may not be available for long.
Anonymous   |     |   Comment #10
I read all of the above comments and you are all correct. I will add mine by saying that low interest rate is not a cure for faltering economy.
Moving interest rates up or down creates unsettled uncertainty to borrowers and savers. Creates nervous state of mind, anticipation, worries and anxieties.

Low rates only helps the banks on long run by widening the spread on loaned money vs borrowed money. But, that is artificial rate that is not sustainable after a year or two do to the fact that it cheapens the value or the lent money and all associated with that purchase. Our economy is based on consumerism not production and therefore lowering interest rate encourages spending and more imports, effectively lowering the value of the dollar, thus making the saved money lose their value even if the inflation is set at an artificially low rate.
Over 90% of items we purchases every day, come from import. By exporting the dollar for cheap throw away stuff we import, it creates the residual value of our savings to go down since we now have to import (borrow) those dollars to finance our irresponsible Governmment spending and the whole cycle repeats itself year after year.
The Feds do not understand this whole process and are focused on irrelevant issues and the banks and are making up solutions mostly on emotions than substance.
Rise and fall in unemployment is normal in a capitalistic system. By trying to suppress it, they are making it worse, by bailing out banks instead of production and export.
Printing money is the most stupid thing a Government can do, because it undermines the basic foundation of thrust and value that the whole business world is based on.
Current interest rates is artificial and can not last long and will not help the economy on long run. Our state of mind is on different level then our Government and therefore we will all suffer together for a while.
Anonymous   |     |   Comment #11
To Anonymous, at 8:06 AM, December 27, 2008, you said it well. I gather, you are either an economist or well educated person to connect all of the ailments in one phrase.

We should send people in Washington based on knowledge and not politics. It is our fault to a certain point for sending back the same people in Congress election after election.

Something to think about it in two years. Happy new year.
Anonymous   |     |   Comment #12
The big problem is, people have short memories every time election time comes around. Amazing, happens every time.
Anonymous   |     |   Comment #13
Re Indymac CD's-- do you really think a new bank buying Indymac now in December/January is entitled to terminate existing CD's and offer them lower rates? I thought that only when a bank failed could the CD contract be broken.

When Indymac failed in July, that was a time for either the investor or the bank (or the FDIC as receiver) to elect to terminate CD's, but notice was sent out at that time that the new bank (Indymac Federal) had decided NOT to revise terms of existing CD's.

In a voluntary sale (e.g Bank of America buying LaSalle this year) I thought that the buying bank had to honor the CD contract.
As the "Indymac Federal Bank" reps were saying, Indymac Federal Bank is the replacement bank that won't fail, and the nonfailure sale now of Indymac Federal to New Bank Inc. should not have any CD revisions?
Or does the CD contract allow any buying bank to terninate a CD?
Anonymous   |     |   Comment #14
I don't read the CD contract that closely, but I am sure that it would be similar to the rules that applies to their other accounts. For checking and savings account, I believe the bank reserves the right to close out the account and send you the balance if they deem to do that. As a general practice rule of business, that rarely occurs. I don't believe that there is a legally binding contract between depositor and bank unlike a real estate sales contract. Can you sue the bank for closing your account or voiding the original terms? I haven't come across any situation like that.

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