Saturday, March 6, 2010

Savers Go Away

Our economy was once driven by reckless credit. Now it is driven by government bailouts. Through all this, savers have been social pariahs for the better part of a decade.

Banking is simple: borrow money at low interest rates and lend it out at higher rates. The difference is your profit. Now, back when the Fed was offering 5% interest rates, if banks could get the money from a saver instead at 3%, that was a good deal for everybody, or at least for the banks. Now today, where federal programs freely make money available at close to 0%, there isn't much point in drawing capital from savers. Aside from interest to the customer, which at this point is 0% wherever you go, banks have to pay 0.25% in FDIC (or NCUA) guarantees, soon to be raised to 0.4%. It appears there aren't enough loans to be made these days to make that 0.4% cost worthwhile.

At least that is what one bank in Nevada is reporting, who is now paying savers to withdraw their deposits. The figures it supplies are interesting. We will see if this becomes a broader trend.

Source: Credit Union: Puh-lease take your money.

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