Savers Feel the Pain of Low Interest Rates

The Fed's low-rate policy has cost U.S. savers $470 billion.

Man Sitting at a Table Using a Calculator
(Image credit: (c) Digital Vision.)

So much for higher interest rates. When the Federal Reserve finally began nudging up rates last December, long-suffering savers saw a glimmer of hope. But rates on bank savings accounts have remained meager, recently averaging 0.16%. The Fed’s seven-year-long policy of keeping short-term interest rates near zero has meant lean years indeed for savers. A study by the Swiss insurance firm Swiss Re estimates that the Fed’s policy (what economists call financial repression) has cost U.S. savers $470 billion—and that’s after factoring in the effect of lower rates paid by borrowers. Swiss Re calls it a tax on savers and points out that at lower interest rates, older investors need a larger savings base to maintain their spending in retirement.

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Janet Bodnar
Contributor

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.