Fed Rate Cut Hurts Savers

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The Fed today cut rates by 0.75% - or 75 basis points - in a bid to shore up the economy.  No doubt, Bernanke is hoping the cut will drop rates on mortgages, eliminating some of the reset pain, as well as reinvigorate a dying consumer.  The problem is, the rates cuts penalize those of us who have been responsible and who have assets in cash or cash equivalent securities.

As rates fall, the rates that banks pay out on savings, cds, and othe cash equivalent securities drops.  With the stock market faltering, cash equivalents appear to be the only safe place to stash your money.  Rates on these investments have been dropping since the first 50 basis point rate cut in September.  After a high of 6% on some savings accounts and short term CDs, you'll be lucky to get over 5% shortly. 

It's true that lower rates my help mortgage holders whose mortgages are about to reset.  Rates on the 10 year bond have fallen.  But once again, its responsible depositors who are subsidizing people who took out risky, and ill-considered mortgages. 

 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • Not Bank of America

    January 23, 2008

    What a disaster America has become, financially and otherwise. Is there anybody at any level of government that has not been corrupted and bought off to the point where rational actions can be taken?
    Is there anything else Wall Street and the Big Banks want? I'm waiting to see Bernanke standing on his head and spitting wooden nickels while the Congress and Senate continue to genuflect for their bribes.
    It's nothing less than Financial Terrorism

  • tightwad

    January 24, 2008

    Well said, Sam. It's a shame that irresponsibility and lack of common sense reaps all the rewards in this country. The people that have used common sense, discression, and made the responsible decisions are the ones that end up shorted in our society.

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