One Official Wants Higher Interest Rates for Investments

One Official Wants Higher Interest Rates for Investments

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Would you invest more money if the interest rates started to increase?

Who wouldn’t want a higher interest rate on their investments? Right now, there is only one federal official on the Federal Reserve calling for higher rates. His name is Thomas Hoenig and he is the president of the Kansas City Federal Reserve. He wants interest rates to go up gradually and he wants the rate at which the Federal Reserve lends money to the private bank to increase as well.

Interest rates for CDs, or certificates of deposit, have dropped dramatically in the last three years. In 2007, for instance, you could earn more than $5,000 annually when you invested $100,000 in a certificate of deposit. Today, you would only earn about $1,550 a year, or about 1.55 percent interest.

One of the main disadvantages of having such low interest rates for investments like CDs and other bank products is that nobody wants to deposit their money into one of these things. Savings accounts are even worse. Why would anyone want to invest in a savings account when they get such a small percent of return on their money? They wouldn’t. And that’s why Hoenig is fighting to raise the interest rates. He would prefer for interest rates to be closer to 3 or 4 percent right now. He is hoping that the Federal Reserve can start raising the interest rates fairly soon. He is proposing that the Feds raise it from nearly zero percent to 1 percent within the next six months. If more people start investing as a result of this increase, he proposes to move it up even more to where it should be.

If the Feds raise the interest rates, Hoenig believes the markets will begin to work better and banks will be more interested in making loans because they can get a good return from it. In addition, this would help stimulate a stagnate economy that has not seen too many exciting days lately.

Do you think something like this is going to be a good idea for the economy? Would you invest more money in certificates of deposit if CD rates went up? Or would you just rather buy goods and put the rest of the money in a savings account?

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  • Shorebreak

    July 12, 2010

    The objective of the Feds is not for people to put money into deposit products insured by the FDIC. The goal of the cabal made up of the Fed and Treasury is not to make it attractive to place funds into savings vehicles but to put one's nest egg into risky equities. Face it, the powers to be just want to continue to prop-up the likes of Goldman-Sachs and the other banksters on Wall Street.

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