Sunday, December 16, 2007

Federal interest rate cuts and the struggle to save

After volunteering for my city's holiday fund event where low income people were able to get gifts for their children and boxes of food for their holiday meals, it put my life and my situation in perspective. I had a great time meeting so many different people and I walked away feeling like I had spent three very rewarding hours of my time.

But then I read articles like the one on The discussion on who wins and who loses with the most recent quarter point Fed rate cut just strikes me as shortsighted and only a temporary fix. The people who benefit: those who buy on credit and maintain credit card balances. Borrowing money to buy a car or using a home equity loan to fund Christmas all will be cheaper. However, for those crazy individuals like me who want to save money, the hope that interest rates will be high enough to meet or even beat inflation was defeated.

I do not understand how people who live within their means and save money are penalized and those who use credit in all sorts of creative ways are allowed to keep spending into an even deeper debt hole. There has to be a point where the overspending and overuse of credit just collapses on itself. I do not see a way that savers will escape unscathed. Hard earned and saved money will then have to be spent but not on the items/future needs for which the money was being saved.

For people looking to buy a home or refinance, this may be an opportune time. I have a good fixed 30-year mortgage and the numbers are not low enough for me to consider refinancing. Talk to me when a 30-year mortgage is around 5%. There will always be someone who gets a better deal or better percentage than I. It is just difficult to take when my hard-saved money loses its earning power.

My savings accounts rates:
ING Direct dropped 0.1% to 4.10% APY.
Emigrant Direct stayed at 4.75% APY.
iGoBanking dropped 0.1% to 4.90% APY.
Credit union savings steady at 0.75% APY.

I am sure my CD rates will also decrease. The credit union adjusts rates every week and I have not seen them hold the rates when the Fed rate is cut. My savings rates are not bad but considering I opened my ING Direct account in March 2007 at 4.50% APY and the iGoBanking one in September 2007 at 5.30% APY, it seems like quite a few points were erroded from the numbers. The amount saved in these accounts are not large so I only losing pennies not dollars, but it is still painful for me to see.

I am thankful I am not in a precarious financial situation but I fear that other people's overextension of their money and their credit will hit my pocket even harder. Here is hoping my doom and gloom thoughts do not come true.

No comments:

Post a Comment