Income investors hurt by rate cuts
| • | Retirees feel greatest blow as savings rates decline |
| • | Fed rate cuts becoming 'counterproductive' |
USA Today
The latest Federal Reserve rate cut last week will further squeeze conservative investors and retirees with modest incomes, while giving little added relief to borrowers already benefiting from prior rate cuts.
"The rate cuts are starting to be counterproductive because of the damage they inflict on income investors," says Peter Crane, vice president of iMoneyNet, which tracks money market funds. "They are cutting the buying power of savers."
Savings rates have fallen hard since the Fed began cutting in January.
Last summer, CD rates were the highest in 5 years, notes Greg McBride, a financial analyst.
Today, they are the lowest in 7 years.
That's a substantial drop for savers. If a family put $100,000 in a 1-year CD, now yielding on average 3.9 percent, they would earn $1,570 less in interest than if they put the same money in a 1-year CD a year ago, when the yield was 5.47 percent.
Money market fund rates also are sliding. They started the year above 6 percent, Crane says.
He predicts the latest Fed cut will cause money fund rates to fall to 3.65 percent.
