About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Help for Savers in This Low Interest Rate Environment - Commentary from Dave Ramsey and Other "Experts"


Help for Savers in This Low Interest Rate Environment - Commentary from Dave Ramsey and Other "Experts"

The New York Times has a section called "room for debate" where leading experts discuss hot topics. A reader pointed out in the forum a recent "room for debate" hot topic, The Sorry Lot of the Risk-Averse Saver. The introduction describes the problems that savers have in today's ultra-low interest rate environment:

They either lose ground, because interest rate returns are low while food and energy costs are going up, or they have to consider making investments that are relatively risky and require longer term commitment.


Acknowledging The Problem

There are six debaters who provide commentary. Two just basically acknowledge the problem. One concludes the first step is for the country to acknowledge this problem:

It will be hard to solve the savings crisis, but we have to acknowledge its existence -- something we have barely begun to do.

Several of the Fed's Regional Bank Presidents have acknowledged this in speeches. Here's what Richard Fisher has recently said:

Americans who have done everything right, have worked hard, saved their money and stayed out of debt are the ones being punished by low interest rates,

In all the speeches and interviews from Bernanke that I've seen, I can't remember when he acknowledged this problem. Perhaps when Bernanke gives his first press conference after the next FOMC meeting, a reporter can ask for this simple acknowledgement.

Recommendations for the Government

Two commentaries provide recommendations about what the government can do to help. An economist proposes a new type of retirement account that "that guarantees a reasonable rate of return and is backed by a professionally managed diverse portfolio." This seems like a reasonable proposal if long-term investing in well-diversified stocks and bonds is such a sure thing as many financial "experts" suggest. The economist's tongue-in-cheek recommendation is interesting:

Federal Reserve employees have a very well-run defined benefit pension plan and could guarantee elderly savers something like a 3 percent return.

Since the Federal Reserve policies take from retirees, the least it could do is manage the accounts of millions of retirees who are suffering simply because of their good intentions to save for a modest, safe and secure retirement.

The other commentary encourages the government to ensure the programs that target retirees and are intended to serve as a safety net be kept intact:

How can the government respond? For the group disproportionately suffering from low interest rates, this is not a time to cut Social Security payments, and we should consider at least a temporary subsidy to offset rising Medicare premiums.

I'm surprised no one suggested tax policy changes to help savers and retirees. Last year I proposed two tax policy changes that could help savers and retirees without significant impact to tax revenue. One good suggestion that a reader provided in the comments of that post is for the Treasury to increase the annual purchase limit on savings bonds to what they were before 2008. In December 2007, the Treasury announced a dramatic reduction of the annual purchase limit for savings bonds. Before 2008, the maximum annual limit for I Bonds was $60K ($30K electronic and $30K paper). This was reduced to only $10K in 2008.

Recommendations for Savers

Two commentaries had recommendations for savers. As you might have expected, Dave Ramsey recommended the stock market:

if you are going to leave your money alone for five years or more, the best place to invest is in good growth stock-type mutual funds that have a long track record of good returns.

The other commentary was more interesting. The economist Garett Jones gave the following recommendation:

Three ways to make the best of this new low interest world are to invest in municipal bonds, match your stock portfolio to your career portfolio, and buy investments that can be durable and make you happy.

Last year a reader provided a guest post, What Your Broker Won’t Tell You about Municipal Bonds. In the post he shared his many years of experience buying and selling municipal bonds. These can be a good alternative to CDs, but unlike federally insured CDs, there is a risk of loss when investing in municipal bonds.

Municipal bond funds also have a risk of loss especially when interest rates rise. However, this risk goes down for funds that invest in shorter maturities. Fidelity Short-Intermediate Municipal Income Fund has a 30-day yield of 1.73% with a tax equivalent yield of 2.66% (as of 4/12/2011). Vanguard Limited-Term Tax-Exempt Fund has a SEC yield of 1.38% (as of 4/12/2011). These yields are a lot higher than money market fund yields. Also, they are higher than bank savings account rates, especially when you consider the tax equivalent yields.

Bottom Line

Unfortunately, as the "room for debate" introduction described, savers have two basic options:

They either lose ground, because interest rate returns are low while food and energy costs are going up, or they have to consider making investments that are relatively risky and require longer term commitment.

However, savers can take many steps to significantly improve option one. The higher the interest rate you can get from your bank or credit union, the less ground you're losing. I have several tips for maximizing your bank interest in my post Strategy for Getting the Best Yields in Deposit Accounts. And of course, you can use DepositAccounts.com to find the best rates.

Related Posts

Anonymous   |     |   Comment #1
Great post...I guess I am the typical type of the conservative investor they are talking about. Although the article does not offer any meaningful solution, at least it makes obvious the fact that there are many in this situation and that no one yet has found a magical solution that I somehow may have missed. The 'experts' have no more of a meaningful or viable plan than the rest of us do and it would appear that they are simply stabbing in the dark in all directions in an attempt to earn their pay. The only meaningful solution is for rates to go up, period, and that, we already knew.
Frank2 (anonymous)   |     |   Comment #2
The interest rates are no longer tied to any index nor is the inflation nor is the money supply nor is........see where I’m going with this, the FEDs are playing a dictatorship game with us,
pulling our legs and outright misleading the American people into a false state of mind.
As long as  Bernanke is given the power of absolutistic ruler, there will never be economic ties (relevance) between the interest rates, inflation, money supply and  savers,
Greg 1
Greg 1 (anonymous)   |     |   Comment #3
When are the saps of this world going to realize that the Fed with Bernanke at the helm ARE THE PROBLEM. Way too much power & authority for a person who is neither elected or sanctioned by Congress! 

Anonymous   |     |   Comment #4
Our government is not Up Front with US --- example ---

The Helath Care Law put into effect by President Obama has a hidden tax on single seniors making $85,001 per year as the threshhold.   What they do is make the senior pay an Income Related Premium Adjustment for Medicare Part B.  For many who live in states where that is not a lot of money --- there is no problem.  For those who live in states like California or New York, $85,001 is not a lot of total income (social security, pensions, even interest and municipal bond interest counts as well as distributions from Individual Retirement Accounts).   This threshhold is frozen by that health care law until 2019 when you can guess they will freeze it again.   I have read many articles where it is described as kind of a stealth tax similar to the Alternative Minimum Income Tax  In 10 years $85,001 will not be a lot of income but more and more single seniors will be getting that much in high cost of living states and will have to pay the Income Related Premium Adjustment  for Medicare Part B.   So that individual would now have to pay more than others getting Medicare Part B.   So the program gets changed from getting benefits based on what you put in during your working years into welfare for the poor with the middle class bearing the burden from now going forward into the future.  (Every dollar of additional interest you earn on your savings may get you some more net income but then the government will take it away in the form of these income related premium adjustments for Medicare Part B and if I am reading the SSA. gov website right, an additional amount for Part D as well.

 Here is the link to the social security website showing just how much more such individuals will pay per month so multiply by 12 and that number serves as an additional tax on selected seniors making $85,001 or more per year for basically the next 10 years and probably going forward as well


Going there now, it looks like they may even charge these seniors more for Part D coverage as well.

I am showing a link to one of the websites (National Committee to Preserve Social Security) that is acknowledging what is happening and giving their take on the matter.


So I applaud any efforts to get savers (including seniors more interest on their savings) but am keeping in mind that unless the Obama health care law gets changed, many seniors will actually be paying more tax -- it will just be labeled an additional Medicare tax.   It seems both the Democrats and Republicans feel it is okay to change this to a means-tested program rather than keeping the promises our government has made to seniors who have already put 30, 40 or more years into working and paying Medicare taxes.


Anonymous   |     |   Comment #5
Thanks for your SOAP BOX speach on medicare. I thought this topic was about Interest Rates???

And those "POOR" $85,000 income a year seniors, Oh MY !! What ever are they going to do??

I'm pretty sure most seniors using this site, that we should be worried about, aren't anywhere near that income. 
Anonymous   |     |   Comment #6
to ANON #5:

You guys go so out the way to protect Obama and anything he touches.  Obamacare is nothing more than an entitlement with all us savers and workers paying for it.  Get your head out of the sand.  This forum is not only about interest rates but for information that we can all use to make the most out of a bad situation.  The current trend of debt and borrowing has finally caught up to us and all of us responsible people are once again just bailing everyone out.  The arthor was just making a point of how the goverment is hiding more taxes and how it effect people.
Anonymous   |     |   Comment #7
One way to beat the extra taxes for being sucessfull is to take taxable income only enough

to live on.If you fear inflation,buy tangibles...precious metals.real estate,non-income stocks,with

extra money.Only pay taxes when you sell for a profit.        
Anonymous   |     |   Comment #8
I do believe this site is titled: Deposit Accounts

And what a great site Ken has here for just such information on Deposit Accounts.


If I were looking for other "financial advice" I would go to those specific sites.
Anonymous   |     |   Comment #9
It must be awful being FORCED to read these posts on topics you don't agree with.
Anonymous   |     |   Comment #10
Anon #8 -

OK, got it, so while your here, you might consider adding some constructive and helpful information on the Deposit Accounts of your choosing. Can hardly wait. 
Anonymous   |     |   Comment #11
Hey #8, just in case you had not noticed, Ken himself started this subject....and a very good subject I might say. So, if you have a problem with it, kindly address your complaints directly to him? As for me, I need all the financial help that I can get, deposit accounts and otherwise, and I imagine many others feel likewise.
Anonymous   |     |   Comment #12
I agree with "anonymous".  I also live in California.  $ 85K is not a lot.  You have to live in this State to see what is happening.  Gasoline here is always 50 cents higher than the National Average.

We have a "special blend", that is better than the rest of the 49 States, So say our elected officials.

It's all part of the big picture.  How can we get decent rates, when the elected offficials are all on the take.  OH, excuse me, it called lobbyists.


51hh   |     |   Comment #13
Like many financial sites, this site has a spectrum of readers and contributors, whose background is not limited just to "deposit Accounts."

Just put in your two-cents like the rest of us, and you may see this site to be useful for other financial topics.

Happy surfing:-)
Anonymous   |     |   Comment #14
Annuities with a guaranteed benefit are another option although these days the guarantee is so low as to not be worth the risk (the risk being insolvency of the insurer). If guarantees inch up though then it might be a good alternative. Folks who bought such annuities in 2006 are sitting pretty right now (after holding their breath during the AIG fiasco of course).

For those who want to "lock in" the current price of gasoline, one can buy a single share of the ETF UGA for every tank of gas you plan on buying. If the price of gasoline goes up then your shares go up, offsetting the increased price of fuel. One could do this for $1 per trade at interactivebrokers. Same goes for heating oil with the ETF UHN. These ETFs essentially allow households to hedge their prices the same way farmers have done it for a hundred years with futures. (Note of coure that one pays .60% management fee).

One could also of course buy the lowly treasury. 4% interest is nothing to sniff at these days. If rates rise then one would be unhappy but I have to imagine that anyone with the gumption to scan the nation for savings rates would also be able to sniff out rising rates and dump their treasuries when the time came. One can buy the ETF TLT again at low cost to avoid the hassles of otherwise buying treasuries and then close your eyes and ignore the price fluctuations while the interest accumulates.

As for buying municipal bonds or investing in the stock market for a 5 year return? Good luck with that strategy! Unless one is willing to plow through Technical Analysis of Stock Trends by John Magee wherein the editor sanguinely notes, "A little old lady with a ruler and a pencil could have saved her portfolio [in 1929 or 2000]".

As for what the government should do? Good god. Stop devaluing the dollar. This is not a matter of debate. Bernanke has quite clearly stated that the objective of QE2 is to force capital to take risk. This is the cornerstone of Keynesian economics, a discipline that blithely ignores common sense, living standards and the very definition of wealth.

Anonymous   |     |   Comment #15
I too am surprised that no one in the press or even the AARP lobby group have picked up on the dilema that savers have faced the last 3 years and how much worse it has become as the Fed continues down this path of ZERO interest rate.  Savers have paid a very high price for the past mistakes of others and continue to foot the bill for the Fed's current policies.  We will never know if the Fed did in fact prevent the US economy from crashing.  But why continue these policies indefinantly???  I don't see the average working person suffering from economic woes as the highways are jam packed with huge gas-guzzling vehicles and all the stores and restaurant parking lots are always full.  I don't think the Fed has ever been really honest about why they really want to keep interest rates this low this long.... Its because of the US multil trillion dollar debt and how it will continue to skyroket if interest rates go back up.  Republicans want to cut budgets of programs that have miniscule impact on our national debt, but give tax breaks to the rich, that willl in turn increase the National Debt.  Democrats want to continue to spend and throw money at programs, with the idea that it will stimulate growth and eventually generate tax revenue, as well as increasing the tax on the wealthy. Neither side can agree on anything, it seems, and in the mean time, the National debt keeps going up and up , and the cost of living is rising every month.  Savers need to smarten up and speak with their power to vote.  Stop voting in the same party line people year after year and start backing some condidates that don't have party affiliation, but who can implement some common sense approaches to our budgetary problems.  It isn't rocket science. We just need folks making decisions that are more interested in the health of the country than on how big a raise they can vote themselves while they are in office.  As long as savers remain silent, they are going to continue to get trampled on by the **** and elephants of this crazy political arena. 
Anonymous   |     |   Comment #16
In early 2009 I bought physical silver on eBay. I just sold it for more than twice what I paid.

What available investment products have produced a similar return during this time period?


I ask this question to every financial advisor I've met. Never received a straight answer.


You can also ask this question about Series I savings bonds purchased before 2008.  Or Canada Premium Bonds.  Or gold.


The stock market only works when the economy is growing. Financial advisors can't comprehend any other scenario.
Anonymous   |     |   Comment #17
To those who think savers don't speak up --- in my case and perhaps others you are wrong.   I have written to my Congressional representatives many many times and the 2 senators' offices as well many many times.   They seem to have a deaf ear on savers.   There needs to be an organization that is going to fight for savers (AARP is in the insurance business and its interests are in conflict with those of savers).

Anonymous   |     |   Comment #18
Speaking of AARP, get real, they are the most corrupt association on earth.
They use the membership fees to pay themselves the yearly bonus and to run a web site.
Thats is all, the rest of the time they are bribing politicians, insurance companies and cutting under the table deals with the outrageous offers to the seniors and robbing them blindly.
Anonymous   |     |   Comment #19
Typical of any lobbyist organization.  Looking out for their own good at the expense of the working class.
Anonymous   |     |   Comment #20
In my view, except for some 'deals' on insurance, car rentals and other promotions from time to time, AARP is totally worthless for the seniors. I do not see where they are advancing, or even attempting to advance, the overall best interests of the seniors.










Inforay   |     |   Comment #21
Ken, Thank you very much for the best website, ever.  I have used it for the last few years and still have some CDs tied at 6%.  Would that those days would return!  I keep returning here again and again in hopes of some good news for us, savers.  I think we will just have to wait.  I hope all savers will continue to write to Bernanke & Co., at the Federal Reserve Board.  It is easy to find their feedback e-mail address on Google.  I have been writing for at least 2=3 years but it hasn't done much good.  I believe he is helping his buddies at the banks by giving them free money so that they can make a huge profit at the expense of the common man.  Banks continue to charge high fees, high interest on credit cards, etc.  I can't understand why student loans which are all federal are also at 6.8%.  The last time interest rates were low, the rates on student loans had gone down, but no longer.  Additionally, this is the one sure way to keep the stock market going up so everyone invested in stocks thinks Bernanke is doing a great job.  Why can't the interest we earn be taxed at the same rate as corporate dividends?

How much power can one peron or small group of persons be allowed in a democracy?  This group of individuals will know when they are about to raise interest rates and pull out of the stock market before that happens.  We all know that once interest rates start to rise the stock market will go down.  For all of us that is a gamble, for Bernanke and company, they have the power to control and decide. I don't think any one individual should have a position on the Federal Reserve Board for more than a year.  They are completely destroying it for all of us and they get to decide who is punished and who is rewarded.