Low Rates Good for Banks, but Pity the Saver

Low Rates Good for Banks, but Pity the Saver If you are a bank, the answer is yes, particularly because the low Custom hockey jerseys rates are accompanied by somewhat higher longer-term rates.

If you are a saver, however, your view might be very different.

This month some interest rate spreads have reached record levels. The difference between what the Treasury pays on a one-year bill — less than half a percentage point — and what it pays on 10-year bonds — a little below 4 percent — expanded to the largest on record this month. In banking jargon, that is a very steep yield curve.

For banks, that is a license to make money with very little risk, particularly since they can get people to open savings accounts that pay close to nothing.

This week I checked the Web sites of the four largest banks in the country — Bank of America, JPMorgan Chase, Citigroup and Wells Fargo — to see what they were offering on an ordinary savings account, say, one with $5,000 in it.

Chase, the retail operation of JPMorgan Chase, and Wells Fargo were offering 0.05 percent. That $5,000 would produce monthly interest of almost 21 cents. If you left such an account untouched for Custom hockey jerseys 20 years, and rates stayed where they are, the glories of compound interest would lead to a profit of $50. Before taxes, of course.

At that rate, if you wanted to put away enough to produce a retirement income of $50,000 a year, without touching the principal, you would need $100 million on deposit.

To be sure, you could get a better rate with that kind of money. But not that much better. JPMorgan Chase’s overall cost of funds in the first quarter of this year was only 0.83 percent.

Largely thanks to that, the bank reported an interest rate spread — the difference between what it charges for money and what it pays for it — of 3.24 percentage points in the first quarter. That is the highest for any quarter in at least five years. (Despite that spread, JPMorgan Chase reported losses DVD ripperon its Custom hockey jerseys consumer business, caused by bad loans made and credit cards issued while the credit party was going on.)