Occasionally I pop over to Yahoo! Finance to check on the stock market’s behavior for the day. Once of the other features on the website is commentary from financial advisors.
Americans who chose to save instead of buying homes they could not afford or cashing out their equity to splurge on luxuries during the real estate boom need a Robin Hood at the Fed, because they’re the ones getting robbed to pay for the recovery. Conservative places to park cash — savings, money markets and certificates of deposit — are still paying well below the inflation rate of 2.2 percent. As of this week, savings accounts are averaging returns of 0.20 percent; one-year CDs are yielding 0.77 percent, according to the Federal Deposit Insurance Corporation.
“The Fed is determined to keep rates very low, and while it’s painted as fiscal stimulus I think it’s really a stealth bailout of the banks,” says Richard Barrington, a certified financial analyst and expert with the bank comparison site Money-Rates.com. U.S. savers have lost $140 billion in purchasing power to inflation over the 12 months ending in March, according to a Money-Rates study released last month.
A Hidden Tax
Effectively, the government through the Federal Reserve has placed a hidden “tax” on those of us who save money. The saver’s hard earned cash is being used by the government to grow the balance sheet of banks across the country.
I was introduced to this idea through a Maura O’Connor, a veteran real estate attorney speaking at an event in Oakland, CA.
The tax takes money from the savers and investors and transfers it to the banks. Banks use the deposits in savings accounts, CD’s, and money market accounts to borrow 10 times the deposited amount from the Federal Reserve at 0.25%. The banks then invest that money in US Treasuries and earn 3% on the larger amount.
Would you pay $3.50 to earn $26.50? I sure would! And the banks will too!
Real Estate As An Alternative
While we could debate the ethical nature of this scenario, we won’t do that here. The question for the savers becomes: Are you going to take this?
If you have been keeping your money “safe” in a CD, money market, or savings account, you have alternatives to the low return you are getting on your cash. There are a variety of real estate investments that you could own that would generate a higher return than what you are getting now. They also are a better hedge against inflation than cash.
If you are interested, please call me at (925) 385-8798.
P.S. You can invest money in IRA accounts as well.