|Frustrated by continuing low rates|
|Posted on Wednesday, August 22, 2012 at 8:45 AM|
I hope you are enjoying these “dog days” of summer as we begin the transition to fall. I met with a mother today whose kids go back to school next week – boy, that seemed early to me!
As we all know, interest rates have been at historically low levels for several years now. For example, the Federal Funds Rate, the rate at which banks borrow overnight to meet reserve requirements, has been at 0.0-0.25% for at least two years and the Federal Reserve has indicated its intent to remain at that level until mid-2014. Obviously, these low rates are intended to spur borrowing and thus improve the economy. Unfortunately, there is little evidence that this has occurred. For example, business borrowing has remained stagnant over the last several years despite the availability of historically low rates. The lack of business investment has kept unemployment above 8% for more than four years (2009-2012). And, the housing market has not rallied in a significant way due to the low mortgage rates. However, an unintended but painful consequence of the low rates is their effect on savers. I met with a woman the other day who was receiving $15,000 a year from her bank CDs to supplement her income; that has dropped to less than $3,000 a year forcing her to liquidate some of the principal to meet expenses. I read an article recently (linked below) that stated that the national average rate for a five year CD had dropped below 1% for the first time since they started keeping records!
If you are frustrated by these continuing low rates, I suggest you consider alternatives:
As you can see, there are a variety of options that offer the potential for greater returns with limited risk. If you want to explore this further, call me.