Friday, November 14, 2008

Deposit Rates and Inflation

So, the Wall Street Journal goes on an on about how great CD rates are.
The average rate of 2.61% on a one-year certificate of deposit as of Wednesday is up from 2% in early May, according to, a North Palm Beach, Fla., financial-data provider. The jump comes despite Federal Reserve interest-rate cuts that have reduced the fed-funds rate to 1%. Such cuts usually lead to lower deposit rates.
Unlike previous periods of turbulence, the Fed's rate-chopping campaign isn't relieving the pressure this time. In the past, reductions in the federal funds rate have helped level off interest rates on CDs and savings accounts, according to Market Rates Insight Inc., which tracks pricing trends for financial institutions. "This time around, it's much more fierce," says Dan Geller, executive vice president of the San Anselmo, Calif., firm.
So, the poor little banks are getting squeezed by having to offer competitive interest rates -- they can't pay for it with bailout funds, because those are all going to pay dividends to their investors. We therefore get super-high interest rates on our savings. Like 3.93 %. Inflation in September was 4.94 %. I don't want to get all tied up in fancy Economic theory, but that's more.

Really? If you put away $100 today, next year you can buy $99 of goods with your savings. Incited?

1 comment:

nephos said...

Isn't this the reverse of "Feeling lucky?" I suspect most people aren't. Maybe its best to think of the remainder as a wealth maintenance fee.