Interest Rates

[David G Baker]

Yesterday I was looking at my Yahoo Front Page and saw a story about the interest rates in Iceland. Iceland has raised their interest rates to 18%. This made me start thinking about some of the bank problems in this country. The bank that I just moved all of my money from was paying .02% interest on passbook savings and wanted to charge me $5.00 a month if the account was inactive. I moved everything I had in the bank to a credit union bank that pays .055% interest on passbook savings and has no penalties. If my banks paid a fair amount of interest on savings I would have had a bunch of money in the bank rather than risking the money in the stock market and many other folks would have done the same. This way the banks would have lots of money to lend and wouldn't have to worry about using tax payer money to bail themselves out of their financial crisis. With the interest rates the way they are I am further ahead spending my money rather than putting it in the bank because the interest rates they are paying is less than the inflation rate.
I took a paper loss of around 40% on my IRA stock accounts. I am fortunate that I don't have to use this money to live on because if I did the account would be empty in a short time.

[Kevin Arceneaux]

Iceland was pretty much forced to do something drastic as the banking system there totally collapsed. A good article on their problems: http://www.economist.com/finance/displaystory.cfm?story_id=12382011

We have an saving account at ING along with a CD. Their rates are a good bit over rates we could find locally and they are insured by the FDIC.

[Matt Bickford]

You should check into what happened with iceland that has led to this. I wouldn't consider lending them my money for a number of reasons. They are having significant problems. If the article you read doesn't mention these problems than you should stop reading the source. If the article does, in fact, mention these problems I would recommend reading the article and not just the headline.

Additionally, I don't think that banks lack money to lend at this stage, hence the low interest rates. Banks have tightened their lending standards considerably. They have the money but nobody to lend it to that meets their guidlines. It's possible for initerest rates that the consumer gets paid to go down as the demand for consumer loans increases because banks need less money to make the few loans that they can make.

That being said, you can do better than 0.55%.

[Eddie Watkins]

All of our financial policies encourages borrowing rather than saving. THat's why we're in the mess we're in. My credit union is currently paying 5.17% on checking accounts with balances up to $30,000. I have to have direct deposit, have my statements sent to me electronicly, and do 12 debit card transactions/ month. I don't know how long it will last but until something changes it's safe.

[Jeffrey Makiel]

David...I fully understand what you are saying. I too have been annoyed by a banking system that says 'spend' versus 'save for a rainy day'.

-Jeff :)

[Jim Becker]

David, you might want to consider using a banking institution that pays a lot more than a half of a percent...like ING. That said, the so-called "savings" rates are pretty pitiful out there and they also tend to get lower as the inter-bank loan rates decrease.

[David G Baker]

Thanks guys, I will check out ING as well as explore my current bank to see if there are other options offered by them. I can't tie the money up for more than 30 days at this time so 30 day CDs may be another option.
I just checked out the ING site and the present rate is 2.75 and the rate is variable. This is considerably more than the rate my credit union is paying.

[Ross Ellis]

Watch out for hidden charges with higher yield accounts.

I have an account with Bank of America I use for when I am traveling. I had a regular savings account that was .02 or something crazy. I went in one day, and got offered a "premium" account that gave about 4%. Great. They didn't mention the $20 a month service charge.

[Pat Germain]

While very large banks with many branches can be convenient, they tend to hit their customers with fees at every turn. Most people can avoid a lot of fees by going with a smaller bank or a credit union.

Mrs. Pat works at a smaller bank. They get a lot of customers who bailed on a big bank after getting soaked way too many times. Some of them even charge you to cash in a lot of coins, for example. There's one bank in my town which is open seven days a week and even most holidays. But oh, do you end up paying for that convenience!

[Ben Rafael]

David,
There are plenty of short term CDs available paying about 5%.

[David G Baker]

Ben,
I am going to go shopping for the 5% CDs. I am going to start locally.
Back in the 70's I locked into a 15.5% 3 years plus $10,000 CD, couldn't believe the monthly addition to my account. That CD started me on the path to get educated as well as sparked a little greed.

[Joe Pelonio]

It's hard to encourage people to save when most banks pay only 2% interest for a minimum balance of $25,000 or 2.4% for $100,000 minimum. Then of course, investment funds being so risky of late, some friends just had their retirement funds pretty much wiped out in a day, and now have to go back to work. Don't ask where they had it invested, I don't know.

[Dennis Peacock]

It's hard to encourage people to save when most banks pay only 2% interest for a minimum balance of $25,000 or 2.4% for $100,000 minimum. Then of course, investment funds being so risky of late, some friends just had their retirement funds pretty much wiped out in a day, and now have to go back to work. Don't ask where they had it invested, I don't know.

I hear ya Joe. My retirement fund has lost 70% of its value. At least now I know I won't be retiring and continue working just to pay the standard set of bills.