Remember when you were a little kid and you got your first savings account passbook? Your mom took you to the bank with the contents of your piggybank, or money you'd saved from your allowance, and you walked out with a little green or blue book with a stamp in it that read "Deposit....$5.00". Periodcally you'd go back to the bank to put more money in and watch the balance go up, and every now and then you'd see a stamp that read something like "Interest: $0.75."
In 1964, when you were eight or nine or ten, $0.75 was a nice little piece of change. It was free money, and you saw how it made your savings grow faster. My first savings account paid 5% a year interest, which was pretty much a standard rate for passbook savings in those days.
When was the last time YOU had a five percent return on ANYTHING?
Even if you've done everything right, and foregone the apocryphal lattes and vacations and you darn your sucks and your kitchen DOESN'T have hand-scraped hardwood floors and granite countertops and an Aga stove, you could find yourself pushed out of your job for being too old, and with your savings earning 0.05%/year instead of 5%/year.
, 0.1% if you have a relationship with the bank. Want to stay away from a big bank like Chase? Hudson City Savings, one of the BETTER banks here in New Jersey, is paying a whopping 0.639%. OK, what about a credit union? Affinity Federal Credit Union is paying 0.25%. For CDs it isn't much better. Affinity's CD rates are abysmal, but Hudson City will pay you the princely rate of 2.50% if you tie up your money with them for five years. Got $100,000 to save? Discover Bank will give you 2.90% if you tie up that $100K for five years.
I posted earlier in the summer about the kinds of returns that stocks have been yielding over the last decade (about the same as bank CDs), and bond yields are down as frantic savers rush in to try to get the only remaining investment that provides any return at all.
So at the same time as Barack Obama's Catfood Commission and the Republicans prepare to pull the plug on Social Security for everyone who doesn't alredy get it, those who ARE able to save after paying for housing, food, clothing, and their kids' college education, are being rewarded by the privilege of housing their money in other people's pockets and letting it sit there
Nonfinancial corporations were holding about $1.8 trillion in liquid assets in the first quarter of this year, according to the Federal Reserve, a level that has been steadily rising and compares with $1.5 trillion at the start of 2009.
“They don’t need the cash,” said Bernard Baumohl, an economist at the Economic Outlook Group, but they are borrowing anyway because it is so cheap at the moment.
As long as rates stay this low, the plight of the saver will be especially disquieting for those who rely on their savings for a large slice, if not all, of their income. That is a particularly unnerving prospect for pensioners or for people approaching retirement age — who now want to draw on the interest from their savings to support them when they are no longer working.
“You have spent your life being prudent, building a nest egg for your retirement, and now the returns are terrible,” said Todd E. Petzel, chief investment adviser at Offit Capital Advisors, a wealth advisory company in New York. “I am 58 years old. I know lots of my peers who are thinking of retiring, and they are scared to death.”
Labels: economic death watch