The mantra of the Federal Reserve for the last decade, or pretty much throughout its entire existence, has been: to hell with savers!
Since the United States economy thrives on spending and debt, not saving and investing, the U.S. central bank hasn’t been apprehensive about slashing interest rates, leaving retirees and savers in the dark.
And new Fed Chair Jerome Powell concedes that savers have not benefited from this rate-hike cycle. With rates still at historic lows, it is hard for savers to see greater returns on their deposits.
From MarketWatch:
The issue came up as House Financial Services Committee Chairman Jeb Hensarling sparred with Fed Chairman Jerome Powell on Tuesday. Hensarling was complaining about the interest the Fed pays banks. “You pay 150 basis points, constituents are getting 10,” the Texas Republican said.
“Retail deposits as you know are sticky on the way up — they generally come up with a lag,” Powell replied.
That’s reflected in the data. In January, the average rate on a 12-month certificate of deposit with a $10,000 minimum was just 0.29% — only 10 basis points higher than the lowest level during the current economic expansion. Other deposit rates are similarly scant.
Shoppers can find higher rates — one-year CD rates are available as high as 2% — but inertia appears to rule the day.
Those low deposit rates show up in bank profitability. On Tuesday, the FDIC reported a 41% plunge in profits during the fourth quarter, but that’s due to a one-time hit owing to the passage of the tax law.
Net interest margins rose to a five-year high, and 70% of banks reported higher net interest margins than a year ago.
The personal savings rate has crashed to a 13-year low of just 2.4 percent (SEE: U.S. personal savings rate crashes to 13-year low).
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