For much of this year, many advisors, market strategists and money managers have been complaining that the Fed’s zero rate policy is hurting retirees and other savers who rely on risk-free investments or savings. But even when the Fed raises short-term rates, which is expected later this month barring any major economic or political crisis, those savers are not likely to collect more money, says Greg McBride, chief financial analyst at Bankrate.com.
Usually CD yields tend to rise along with Treasury yields but “this time is different from previous cycles,” explained McBride. “This time a lot of banks don’t have the incentive to boost CD yields… They’re flush with deposits [because] the American investors is very risk-averse.”
Banks don’t have to raise rates to attract more deposits because they already so many deposits, and if they did, it would cost them at a time when they want to boost margins. “Banks will likely use a rate hike as an opportunity to boost their margins, which have been under pressure with low rates,” said McBride.
In the meantime savers have been collecting more money recently since rates have been rising on the expectation that the Fed will finally get off zero and raise rates for the first time in more than nine years.
Three-month Treasury bills are paying 29 basis points, or 0.29%, since mid-October, when they were zero, and six-month bills are paying 0.57%, up 49 basis points, from mid-October. During that same time 10-year Treasury note yield rose to 2.23% from 1.99%.
While savers can’t expect to earn more income after the Fed hikes rates, borrowers can expect to pay more on loans, according to McBride.