Thursday, September 09, 2010

Very low interest rates let borrowers "mooch" on savers (at least indirectly!)

The New York Times today ran an interesting front page perspective by Graham Bowley, “Falling Rates Aid Debtors but Hamper Savers”, link (website url) here.

The problem is particularly serious for retirees living off their savings.  When people refinance or otherwise borrow, they do not pay as much as they should if the nation's policy were more serious about improving savings, as for retirement (hence the verb in the title of the post). It may be wise to borrow more. 

The low interest rates effectively transfer wealth from savers back to borrowers. Savings CD’s that earn 1.5% now could have earned 4.5% three years ago.

Bond prices rise, however, as companies issue bonds at lower rates of interest. Another Times story reported that many stadiums around the country that have been torn down for new ones still owe bond interest.

The Market Rate Insight blog has a posting Sept 7 about deposit balances trending down after two decades of growth, here.

I suspect my own car loan from 2009 might have been at a lower rate had I waited until this year, but repairs on the oldie were too much. So I a borrower be, too.

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