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Why Savings are Suffering: Fed QE3 Policy Costs Seniors

issue brief

Why Savings are Suffering: Fed QE3 Policy Costs Seniors

November 12, 2012
EconomicsOther

With U.S. and global growth slowing, Federal Reserve chairman Ben Bernanke is pumping more money into the banking system in an attempt to rescue the economy.

This has lowered interest rates, reducing the return from savings. Seniors are particularly hard-hit, because 10 percent of their income comes from interest on savings.

If interest rates were 2 percent rather than 1 percent, the average senior would have an additional $3,200 in income. If rates were 4 percent, the senior would have an additional $9,500. If rates were 6 percent, the senior would earn $15,800 more per year.

Naturally, other parts of seniors’ portfolios are positively affected by low interest rates, so the amounts above are not a net gain. For instance, low rates causes the value of equity investments and housing to rise, so seniors’ portfolios become more valuable.

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