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Federal Reserve System officials are expected to forgo raising the Fed’s benchmark interest rate when they meet today and tomorrow, Reuters reports.
That’s doubly bad news for people’s savings accounts, according to a new analysis by NerdWallet.
First, a postponed hike would be bad news because when America’s central bank raises its benchmark interest rate, financial institutions generally follow suit, offering higher interest rates.
So, rate hikes help you earn more in your interest-bearing bank savings and checking accounts, money-market accounts, and certificates of deposit.
Additionally, NerdWallet found that all of us have already lost out on a collective $7.7 billion in savings over the past decade. That’s in part because the Fed kept its rate essentially at zero percent for seven years following the recession — from December 2008 to December 2015, when the Fed upped its rate to the current target of 0.25 to 0.5 percent.
NerdWallet’s $7.7 billion conclusion is based on a comparison of the amount of money the average American saved and the interest rates earned on high-yield personal savings accounts in 2006 and 2016.
Based on data from the Bureau of Economic Analysis, the average American in 2006 earned a post-tax disposable income of $33,591, saved 3.3 percent of that income, and earned an interest rate of 4.5 percent in high-interest personal savings accounts.
That compares with the average American’s projected average post-tax disposable income in 2016 of $42,350, of which 5.2 percent is being saved, with an interest rate of 1.05 percent.
Roll those per capita numbers up to the U.S. population, and the aggregate high-interest earnings in 2006 were $15.2 billion, compared with $7.5 billion expected in 2016 — a difference of roughly $7.7 billion.
In other words, although we are earning more income and saving a greater percentage of it today, we’re socking away fewer dollars than we were in 2006.
But while interest-rate decisions by the Fed and financial institutions are beyond your control, shopping around can get you a better interest rate than you currently earn on your savings.
How do you feel about the Federal Reserve keeping its benchmark interest rate so low or so long, or the resulting measly personal interest rates offered by banks? Share your thoughts in our Forums. It’s the place where you can speak your mind, explore topics in-depth, and post questions and get answers.