Savers earning pennies for thrift

Americans are receiving smaller returns than they have in almost 100 years.

Recently, I saw that the rate on one of my accounts had fallen to 1/20th of 1 percent. Several thousand dollars has earned me 46 cents so far this year. How are your savings doing?

Ironically, as savings go on life support, banks are getting healthier. Third-quarter reports show many financial institutions with soaring profits — and why not?

Look at their costs of doing business. The federal funds rate is 0.25 percent and the discount rate banks charge each other for overnight loans is at 0.5 percent.

Both these rates are the lowest they have been in over 50 years. Most big banks pay 0.10 percent to obtain capital from passbook savers. Banks get money for nothing, but give nothing for our money.

Other banking operations greatly increase profits. For example, the spread between the federal funds rate and commercial mortgages used to range around 3 to 3.5 percent

Nowadays, the spread is 5.5 percent, as banks reshape their profit margins. Worse yet for the ordinary citizen, banks are still maximizing interest rates on credit card balances (as high as 21 percent on mine) and they are socking it to customers with overdraft protection charges.

Public dissatisfaction with banks unexpectedly surfaced in Chicago during the American Banking Association meetings in late October.

Five thousand marchers accused banks of multiple failures: not lending to working families for mortgages, not lending to create jobs and planning to offer huge bonuses again. AFL/CIO president Richard Trumka, noting “banks are stewards of our savings,” charged bluntly, “You have failed.”

Savers need a better rate and banks can afford to give it to them. The national average for CD rates the week ending Nov. 13 was 0.52 percent for six months; and 0.77 percent for 12 months.

You can bet every senior citizen is aware of this debacle. In Atlanta, the average return was 1.22 percent for a six-month CD — with some rates as low as .25 percent — and 1.68 percent for a one-year certificate, as of Wednesday.

Yes, some rates are better than others, but all these rates are horrendous. When I see “great” or “unbeatable,” describing rates below 2 percent I get nauseated.

What can be done?

On the micro level, the smaller ABA banks can help as they already offer (relatively) higher rates for savings products.

They could add a much needed liquid CD (LCD) to their packages.

With terms of nine or 12 months, rates guaranteed at the highest possible level, LCDs would allow depositors to withdraw money at any time.

As we learned during last fall’s banking crisis, liquidity does have a high value.

Unfortunately, smaller or community banks don’t offer these LCDs.

Bank of America does, but its rate is a miserly 0.60 percent. SunTrust offers a one-time withdrawal CD at 1.15 percent.

On the macro level, we must put a wall of separation between bankers and brokers.

Let’s face it. Many banks don’t want to be like traditional banks anymore.

They see themselves as brokerage/trading agglomerates that derive most of their profits from trading operations.

Hence the Chicago protesters complaint that banks — at least the big ones — don’t write enough mortgages or support community development. We need to get back to banking basics.

If things don’t change, then savers should also take to the streets at the next ABA meeting. I’ll happily toss my 46 cents in the air in protest.

Silvio Laccetti is a professor of social sciences and a national columnist.

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