By Allan Sloan
This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers? Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being cheated by the government’s bailout of the imprudent.
Here’s the deal. The government is spending trillions to keep interest rates down to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers’ incomes. “It’s a direct wealth transfer from savers and retirees to overly indebted borrowers,” says Greg McBride, senior financial analyst at Bankrate.com.
Since October 2007, when government intervention in the financial system began picking up speed, yields on the ultrasafe one-year and five-year investments that many retirees favor have tanked. Two years ago, the average yield on a five-year federally insured bank CD was 3.9 percent, according to Bankrate.com. Now it’s 2.2 percent, a drop of more than 40 percent. Yields on one-year CDs have almost vanished: 0.92 percent, compared with 3.6 percent. On five-year Treasury securities, the yield is down to 2.3 percent from 4.4 percent. On one-year maturities, you get a minuscule 0.3 percent, down from more than 4 percent in 2007.
Continue reading Uncle Sam’s Gift to the Prudent Saver: Less Money