10
May
12

The war on savers, more than just CD interest rates

Recently we read Robert Wenzel’s brazen speech delivered at the fed. Regardless of who actually attended the speech, bromances are spawning.

In conclusion, it is my belief  that from start to finish  the Fed is a failure. I believe faulty methodology is used, I believe that  the justification for the Fed, to bring price and economic stability, has never been a success. I repeat, prices since the start of the Fed have climbed by 2,241% and there have been over the same period 18 recessions...The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or,  if you stop printing, another massive economic crash will occur. There is no other way out.

We all know interest rates for savings are hardly anything to get excited about. Anyone can feel the pinch at the grocery store while seeing their money in a CD is loosing spending power. But, is the Fed’s policy of keeping interest rates low just hurting your savings account? Here are three other ways low interest rates are hurting savers.

1) Insurance products – Believe it or not, insurance companies like to make a profit, or at least, stay afloat.  But, when they issue a policy, they put in some fancy statistic work by geniuses genii who passed some practically impossible tests.  They also account for the current interest rate.  If interest rates are low when they issue the policy, premiums will be higher.  If interest rates are high, premiums will be lower.  Interest rates have a direct effect on insurance premiums.

2) Annuities – Same as #1.  If you are in the market for an annuity, you will have to pay more under a lower interest rate environment than if interest rates were “healthier.”  Thinking of retiring and want a SPIA (single premium immediate annuity)?  Well, we hope you saved up because it is going to be expensive.  Of course, when and if to take out a SPIA is whole ‘nother conversation.  Here is a chart on the Boglehead’s wiki and here is Wade Pfau’s article on SPIA and interest rates.

3) College Tuition – While interest rates on Federal student loans aren’t necessarily tracked directly with treasury rates, there is some correlation.  And certainly many private student loans are plus t-bill rates.  But, how does this hurt savers?  There has been a change in the trend of college tuition since about 2001, and it hasn’t been for the better.  When tuition rates rise, students whine.  And since most students borrow money to fund college, one relief that is given to them is lower interest rates.  The message sent to the college is the government will help support their high cost of attendance.  Those who save for their children to go to college will have to save more because of the growing cost of tuition, part of which is fueled by lower borrowing costs.

source: NCES, Digest of education statistics, table 345

So, it’s just not your savings accounts taking a hit.  The lower interest rates hurt savers in other areas as well.  Time will tell how the Fed’s experiment works out.  Let’s hope for the best.

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6 Responses to “The war on savers, more than just CD interest rates”


  1. 1 AverageJoe
    May 10, 2012 at 1:54 pm

    My spouse and I were discussing this topic last night.The United States economic engine is built on rewarding debtors. We’re so worried about being kind to people in debt (and to facilitate higher spending) that we’ve neglected savers.

  2. May 11, 2012 at 9:13 am

    The Fed is being pulled from both sides. We have the same problem up here in the north; to raise interest rates or leave them low. The thing is our economy is based on how much people are spending, rather than how much we’re producing. I’m no economist but I would put my money into inflation protected investments like gold, stocks, and i-bonds right now.

    • May 11, 2012 at 4:06 pm

      Disagree whole heartedly with just about everything you said. We believe there are some part of Keynesian theory that applies to macro-economics. But, as Robert Wenzel pointed out in his speech linked about, there are ipad, ipods, iphones etc. Read the speech.

      Gold is probably one of the worse places you can be right now. It will keep up with inflation. We love i-bonds as much as the next guy, but to run solely to them would be a mistake. And you can only buy $10k/yr and $5k/tax return. Stocks, now we’re talkin’!


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