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A proposal to fight low CD rates

By Sheyna Steiner · Bankrate.com
Thursday, December 6, 2012
Posted: 11 am ET

Another celebratory winter season is here, and savers will once again find their holiday wishes thwarted. Rates on certificates of deposit are going to stay low until 2015, barring an economic miracle.

What savers need are lobbyists for better CD rates. At this moment in history, banks, generally of the mega variety, can make money speculating in capital markets while depositors practically pay for the privilege of keeping their money with financial institutions. An opinion piece on the website Plansponsor.com makes the case that there is something screwy with this setup, specifically in the monetary policies of the Federal Reserve that deny savers a decent return:

… In an unmanipulated monetary system, the return to savings should be positive. It is as close to an economic fact as any we have: Someone who forgos consumption and gives his wealth to someone else to use is entitled to some compensation for doing so. I would say, more to the point, that it is a moral fact.

So, then why isn't it an actual fact? Because, just like as Germany in the 1920s and any number of other examples I could cite going back to Mongolian Emperor Kublai Khan, the monetary authority is conspiring to rob savers. If you ask economists who support this policy, they will tell you that the "paradox of thrift" and the "savings trap" require this policy. And, if you don’t "get it," those same people will say those are subtle concepts just too hard for ordinary people to understand.

We've heard from the Federal Reserve chairman that everyone is better off in an economy not in perpetual recession, including savers. But individuals deserve better treatment, at the very least a fair rate of return on savings.

The author of the Plansponsor.com piece, Michael Barry, suggests that the Federal Reserve issue a "saver's bond" to be held in a qualified retirement account, such as an individual retirement account, for which there would be no secondary market. Owners of saver's bonds could sell them back to the Fed at par.

In return for your money, the Fed would pay you a fair rate of return. "If you think 3 percent is too high, then let's call it 2 percent. Whatever it is, it's not negative 1.35 percent," Barry writes. Five-year Treasury Inflation Protected Securities currently clock in at negative yields.

Of course, once inflation is factored in, nearly all CDs are losing money today as well.

Are you invested in CDs? Or, have low CD rates chased you away?

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Follow me on Twitter: @SheynaSteiner.

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2 Comments
laura locascio
January 03, 2013 at 11:34 am

The banks have plenty of money.
The banks do take the money & make wise investments.
(Making them more money)
Not giving loans & many not asking for loans.
The banks could pay higher interest on Savings & CD'S.

HykyrJoe
December 07, 2012 at 12:10 pm

we're getting killed by lower cd rates, we've cut back on major home purchases and repairs, and only now do things which show an appreciable return in energy savings or efficiency . We also had to cut back on our discriminatory spending like resturants and going out, our income from cd interest has declined 70% from it's peak. we are now withdrawling our cd's at .95% accounts and investing in solar Pv to reduce or eliminate electric costs as it returns about 8% at current electric rates (but you don't have liquidity like a cd)returns on capitals costs may take 4-5 years or more to realize, but we're in for the long haul and electric costs will only go up.