Fed Statement Provides a Few Rays of Light to Savers

Fed Statement Provides a Few Rays of Light to Savers

The Federal Reserve released their FOMC statement today and while slightly more optimistic than prior statements, made it clear rates will remain low for some time. Savers cannot rely on the Fed for more yield.

The Federal Reserve released their FOMC statement today and it presented no new news for savers. The statement reiterated that economic conditions will warrant exceptionally low rates through mid-2013. Essentially, with unemployment still above 8% and economic shocks emanating from Europe, the economy has still not found its footing.

The Fed did find a few rays of optimism. The economy has "been expanding moderately," household spending "continues to advance," and "inflation has moderated since earlier in the year."

The major drags remain on the economy though - unemployment and housing.

What does this mean for the average saver out there? It means more low rates until at least 2013. At the moment, there is nothing on the horizon that suggests the Fed will raise rates anytime before then. Next year, 2012, looks to essentially be a repeat of 2011 with low savings rates and low borrowing rates. For borrowers, if you can get a loan, the environment looks positive.

With Europe teetering at the edge of a precipice and the US housing market still in a slide, it's hard to see much change before 2014. They say economic cycles run in 7-10 year spans. If that's the case, then savers may not see significantly higher rates until 2015. And then there is the case of Japan, where interst rates have remained close to zero for the last twenty years.

What's a saver to do? Look for the best rate on your savings account. If rates are low, and likely to stay that way, at least get the best of the worst. Consider purchasing longer-term CDs. They provide more yield and if rates are not going to rise you might as well take advantage of the extra yield. Back in 2008-2009, many analysts said not to invest in a 5-year CD because the rates were too low. At that time, five-year CDs paid over 5%.

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Reviews

  • Timothy Reardon

    December 15, 2011

    People have been hyping inflation for the last five years. The government is already printing money and inflation is non-existent. Deflation is a bigger concern.

    Give the inflation thing a rest.

  • Penny Saver

    December 15, 2011

    The US is different than Europe. We can print our own money. Once the printing presses get going look for rates to take off.

  • Roost

    December 15, 2011

    If the government doesn't get the budget under control look for interest rates in the teens. See Italy where rates on government bonds have spiked above 7%.

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