Fed’s policy not paying off for savers

John Dimsdale Feb 24, 2010
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Fed’s policy not paying off for savers

John Dimsdale Feb 24, 2010
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Bob Moon: Don’t bother stopping me if you’ve heard this before: Low interest rates are here to stay for a while. Fed Chief Ben Bernanke delivered his latest monetary forecast on Capitol Hill today, calling for 0 percent short-term interest rates for banks, which doesn’t improve the outlook for a return on your savings.

As our John Dimsdale from Washington reports, this long financial drought could be pushing savers into more risky investments.


JOHN DIMSDALE: Ben Bernanke said there’s still way too much slack in the economy with stubborn unemployment and a struggling real estate market. There’s also no sign of inflation. And that means the Federal Open Market Committee will keep interest rates right where they are. Here it is in Fed-speak…

BEN BERNANKE: The FOMC continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

But when banks can get cheap money from the Fed, they don’t pay savers much for their deposits. Low returns have hit just as Americans are reacting to the credit crunch by saving more.

JEFFREY KOSNETT: It does create the temptation to “stretch for yield.”

Jeffrey Kosnett is a senior editor at Kiplinger’s Personal Finance Magazine. He says some investors are lured by returns on corporate junk bonds or real-estate trusts.

KOSNETT: But this is more suitable if you’re in your 30s or your 40s, and you have many years to catch up if you have any more stumbles.

For those with a shorter time horizon, financial planner Don Patrick at Integrated Financial Group advises patience.

DAN PATRICK: We’re in a very low interest rate environment, 1, 2, 3 percent, let’s say. Just be happy with that for a few years. Most likely in a couple years interest rates will start creeping up. Then you can go out and get your five-, ten-year bonds, or get longer maturity CDs.

Fed officials say it’ll be months before the central bank starts raising interest rates.

In Washington, I’m John Dimsdale for Marketplace.

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