Wednesday, September 08, 2010

The Frugal are Losers Too

by Bill McBride on 9/08/2010 08:34:00 PM

From Graham Bowley at the NY Times: Debtors Feast at the Expense of the Frugal

For example, anyone keeping $500,000 in a 12-month certificate of deposit earning a rate of 1.5 percent annually — one of the best savings rates available nationally these days — would earn $7,500 a year, hardly enough to live on. Just three years ago, that same investment would have generated $26,250.

... Anyone investing $500,000 in 10-year Treasuries at current yields would earn $13,500 a year.
Obviously retired people, living on bond yields, are taking a hit as bonds mature. And this is pushing some conservative investors into riskier assets too.

The BEA has been reporting that Personal interest income has been falling since Sept 2008, and I expect interest income will fall further as bonds and CDs mature.