For generations we’ve been taught by our parents to save. Save for a bicycle. Save for college. Save for retirement. And then, in retirement, you could count on this savings to earn interest. Millions of Americans used Certificates of Deposits (CDs) and low risk bonds to ensure they could retire without worry. Think about this...$50,000 in CDs in 1990 earned 8% interest, or $4,164, each year. And a $10,000 balance in your savings account earned 5.5% interest, or $565, each year.
Today that $50,000 earns 0.6% interest, or $301. The other $3,863 is no longer yours! And your bank now only needs $50 to pay you for the use of the $10,000 in your savings account. Where did that money go? Who took it and why aren’t you upset about it?
Your interest income now benefits someone else
The simple truth is your savings interest is being given to those borrowing money in the form of lower interest rates on their loans. You lose your interest income and pave the way so someone can buy a home for lower interest, a business can buy equipment at lower financing rates or so the government can pay low interest rates on their spending in excess of their tax revenue.
In fact, the government’s spending is the elephant in the room. The government cannot afford to pay high interest on their excess spending, so there is tremendous pressure to keep interest rates on these borrowings as low as possible. This policy reverberates through the banks who price their lending on low fed rates.
The message being given
The inadvertent message to savers? Stop saving! Yes, we are taking your money and lending it to someone else. But since our loan rates are so low, we cannot pay you much of anything for the use of your money. So stop saving and go into debt. The interest is so low!
Yes, you are a victim of interest income theft. It is being given to borrowers, especially the government. Here are some ideas to reduce the cost of being a victim of this theft:
Source: Bankrate historic rates for CD’s and deposit account in1990 and in August 2021, as well as The Buffalo News, April 11, 1990.
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