Low Rates Good for Banks, but Pity the Saver

The New York Times
On Friday April 16, 2010,
 
Aren’t low short-term interest rates wonderful?


If you are a bank, the answer is yes, particularly because the low rates are accompanied by somewhat higher longer-term rates.

If you are a saver, however, your view might be very different.

This month some interest rate spreads have reached record levels. The difference between what the Treasury pays on a one-year bill — less than half a percentage point — and what it pays on 10-year bonds — a little below 4 percent — expanded to the largest on record this month. In banking jargon, that is a very steep yield curve.

For banks, that is a license to make money with very little risk, particularly since they can get people to open savings accounts that pay close to nothing.

Saving matters but Investing determines - Part 2