Updated: May 3, 2013 12:14PM
When my mother heard I was having lunch with Fed Chairman Ben Bernanke (along with about 1,000 members of the Economic Club of Chicago), she suggested I ask him to raise interest rates again. You see, Mom's a saver -- and welcomes earning more interest.
And when I passed along her suggestion, Bernanke responded with a determined set of his lips.
Bernanke then proceeded to give his audience of business executives a scholarly, well-balanced and understandable discourse on the history of the relationship between energy prices and inflation. It was quite a change from Alan Greenspan, whose speeches were exercises in obfuscation. But Bernanke has learned one other thing in his short stint as Fed chairman: Never give a hint of where you really think interest rates are going.
The hunt goes on
The markets are betting that the Fed will raise rates again at its June 28 meeting, if only to keep its inflation-fighting credentials polished.
But what does it mean to the ordinary consumer? Without guidance from the Fed, you'll have to hunt for the highest rates on savings, and the lowest on borrowings. And in most cases, that means going online.
Banks have been reluctant to raise interest rates on savings deposits. There's an awful lot of money sitting around, and relatively little demand from borrowers as housing sales slow.
Still a few financial institutions are obviously out to gather deposits by offering eye-catching rates -- mostly for those willing to open an account online and read the fine print.
For example, Countrywide Bank, a subsidiary of Countrywide Financial Corp., has created a new online savings account, SavingsLink, available only at www.countrywidebank.com. It offers an annual yield of 5 percent on a minimum $50,000, a yield that is more than double the national average for a jumbo money market account. With lesser amounts on deposit, you get an annual 4.25 percent -- still nothing to sneer at, compared with the national average money market deposit rate of 3.1 percent.
CitiBank offers an annual percentage yield of 4.75 percent for its e-Savings account, which must be linked to a qualifying EZ-Checking account, which you must open at www.citibankonline.com. But there is no minimum balance requirement, and you can access this account with your debit card.
Finally, the banks are recognizing that their costs for online banking are lower -- and they're starting to pass along the benefits to online depositors. The same FDIC insurance applies to accounts opened online.
And here's some hot news from a student loan company that has decided to compete to offer lower rates on new Federal student loans. In a market that has long been dominated by a form of price fixing, now you can get a better deal than the published rates on new federal student loans. (Note, this is not about consolidations; it's about new loans that students will be taking out for the fall semester.)
At www.myrichuncle.com, you can apply for federal student loans at better rates. Instead of paying the widely publicized federal rate of 6.8 percent for Stafford loans, you'll pay only 5.8 percent. And for PLUS loan borrowers (typically parents of students who don't qualify for federal student loans), the Web site rate will be 6.75 percent, instead of the 8.5 percent that will be charged this fall by most lenders.
Competition in lending
What's going on here? In a word: competition. This company is willing to take a thinner profit margin on these loans than the rest of the student lending market. The company, financed by financial giants including Merrill Lynch, is set to revolutionize the student lending market by offering lower rates on the same product.
Students go directly to the Web site to get this loan, and by law the financial aid offices at universities must certify (accept) these loans to pay for college expenses. Once again, the Internet model is starting to save money for savvy users.
Fed watchers are still expending energy trying to decipher the comments of Fed officials. And it seems to me the Fed is still trying to decipher the messages of the economy in the latest reports. If Ben and friends raise rates this month, you can blame it on my Mom's advice -- and then use your best efforts to take advantage of the interest rate deals for savers as well as borrowers. That's The Savage Truth.
Terry Savage is a registered investment adviser.
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