Fed’s Low-Interest-Rate Policies Have Cost Depositors More Than $750 Billion, Says New Study

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New research indicates that the Federal Reserve’s efforts since 2008 to keep interest rates at historic lows have cost savers more than three-quarters of a trillion dollars in purchasing power.

Low-interest-rate policies have helped bail out banks, the stock market and real estate, but the Fed has not publicly acknowledged the cost of those policies.

If not for the Federal Reserve’s low-interest-rate policies, depositors might have enjoyed an estimated $757.9 billion in additional purchasing power over the last five years, according to a new report from MoneyRates.com.

The study, which MoneyRates.com has conducted each year since 2009, calculated how much more purchasing power consumers would have gathered in the last year had deposit yields kept pace with inflation – something that deposit yields have done throughout much of recent history. Since 2008, the Fed has taken aggressive measures, including keeping the federal funds rate at an all-time low and instituting its quantitative easing program, to keep interest rates at artificially low levels.

As a result of these low rates – MoneyRates.com used average money market account rates for the purposes of the study, which fluctuated between 0.08 percent and 0.10 percent – even the low annual level inflation (1.5 percent) was enough to erode the purchasing power of American deposits by $122.5 billion over the last year. Added to the total for the previous four years, the figure jumps to $757.9 billion.

Richard Barrington, CFA, senior financial analyst for MoneyRates.com, says that while the Fed’s policies have saved consumers money in some ways – such as through cheaper mortgage loans – it shouldn’t be overlooked that these efforts have effectively taken money from savers and given it to borrowers.

“It’s a stealth bailout,” says Barrington. “Low-interest-rate policies have helped bail out banks, the stock market and real estate, but the Fed has not publicly acknowledged the cost of those policies. Our estimate of the hidden losses due to low interest rates is an attempt to shine a light on that cost.”

Barrington says that the Fed’s recent concerns over the ongoing low levels of inflation in the U.S. may further irritate savers who have watched even moderate price increases significantly outpace their deposit yields over the last year.

“It’s a little like seeing someone get run over by a tank, and then worrying about the condition of the tank,” says Barrington of the Fed’s worries over weakly rising prices.

Barrington also says that encouraging borrowing through low interest rates could be considered irresponsible given the role that high debt levels played in the financial collapse that preceded the Great Recession. Non-mortgage consumer debt has risen by more than 20 percent since 2009, and mortgage debt has also been climbing recently.

For the full analysis, please see the MoneyRates.com report, “How much have Fed policies cost savers? Try $757 billion.

About MoneyRates.com
MoneyRates.com has been a leading source of information on bank rates, personal finance, savings accounts and investing since 1999. The site seeks to provide the highest rates on CDs, money market accounts and high-yield savings accounts. MoneyRates.com is owned and operated by QuinStreet, Inc. (NASDAQ: QNST), one of the largest Internet marketing and media companies in the world. QuinStreet is committed to providing consumers and businesses with the information they need to find, research and select the products, services and brands that best meet their needs. The company is a leader in visitor-friendly marketing practices. For more information, please visit QuinStreet.com.

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