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May 23rd, 2013

What’s the Fed costing us?

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3-Federal-ReserveIf you’re a recent homebuyer or were lucky enough to refinance your mortgage, the low interest rate environment created by the Federal Reserve has allowed you to lock in a historically low mortgage rate for perhaps the next 30 years.

To illustrate what that means in terms of savings, let’s do a quick calculation:

On a 30-year, $250,000 home loan, the interest savings produced from a 3.5 percent interest rate versus a 4.5 percent rate is $144 a month and $51,877 over the life of the loan. Imagine what you could do with an extra $50,000.

What about everyone else?

But not everyone in this country is buying a home or trying to refinance their mortgage. What about those who are trying to save and invest money?

Well, the Federal Reserve’s low interest rate programs aren’t saving those folks, the Fed is costing them serious money.

New study on MoneyRates.com

According to new analysis by MoneyRates.com, a leading source of information on bank rates, personal finance, savings accounts and investing, in four years the Fed has cost Americans $635 billion in purchasing power. The Fed has cost U.S. depositors more than $120 billion alone in the 12-month period ending in March.

The premise here is this: The Fed is to blame for short-term deposit rates being below the rate of inflation over the last few years. MoneyRates explains that historically, short-term interest rates have either kept pace with the rate of inflation or exceeded it. But the “unprecedented efforts” by the Federal Reserve to keep interest rates low have forced deposit rates below the rate of inflation since 2008.

‘Why are you doing this to us?’

“Since the Federal Reserve is the chief architect of today’s low rate environment, depositors may want to ask the Fed a simple question: Why are you doing this to us?” wrote MoneyRates columnist Richard Barrington.

“The Fed’s answer would be that low interest rates are intended to stimulate the economy by encouraging borrowing. But this strategy has produced only questionable economic results, all while the estimated losses for American depositors have continued to grow.”

New infographic

In addition to their analysis, MoneyRates.com has also created the infographic below to better illustrate the affect the Federal Reserve has had on U.S. depositors.

Fed vs. your savings (infographic)
Courtesy of: MoneyRates.com

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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