I suppose the only good news here is that the Fed really has no more room to slash rates. All it can really do now is pump billions/trillions of dollars into the [...]]]> As expected, the Fed cut its key lending rate to almost 0% today. Apparently, it’s in a variable range between 0% and 0.25%. Wow.

I suppose the only good news here is that the Fed really has no more room to slash rates. All it can really do now is pump billions/trillions of dollars into the money supply.

The bad news is that we can expect banks to start slashing their savings rates accordingly. I’m updating the rate Wiki right now with some recent drops that I missed a few days ago, but I expect more to fall soon, perhaps starting with ING and WaMu/Chase.

Hold on to your pocketbooks, folks.

Where will it stop? Allow me to make a (hopefully erroneous) prediction – interest rates will hit 1.0% by Summer 2009.

See for yourself.

Alas, I regret to say that my prediction has come true, albeit [...]]]> Back on 30 January 2008, I made a prediction. In response to the Fed cutting the rate down to 3%, I wrote:

Where will it stop? Allow me to make a (hopefully erroneous) prediction – interest rates will hit 1.0% by Summer 2009.

See for yourself.

Alas, I regret to say that my prediction has come true, albeit about 8 months early! Today, the Federal Reserve slashed the Funds Rate all the way down to 1%. What does this mean? It means we can probably kiss our 3% savings accounts good-bye!

Just call me Nostradamus.

Since I am now such a widely revered prophet, I will graciously and generously bestow upon my readers five answers to your question about the future. Free of charge!

Behold! Nostradamus speaketh!

Q: How low will the Federal Funds Rate go?

A: By October  2009, the Funds Rate will actually hit Absolute Zero.

Q: How long will this recession last?

A: 42, naturally.

Q: Who will win the 2008 Presidential Election? McCain or Obama?

A: Neither. Ron Paul will win a landslide victory by write-in votes. His first executive order will be to tar-and-feather Bernanke and Paulson.

Q: So far this century we’ve seen both the dot-com and the housing bubbles burst. What bubble will inflate next? Gold? Oil? The Dollar?

A: No, no, no. Tulips.

Q: Do you have any winning lottery ticket numbers for me?

A: Uh, sure. But if you win, you have to cut me in at 3%, or whatever the current Fed Funds rate is, whichever is higher. On second thought, let’s just stick to 3%.

Here they are: 4-16-24-35-51-14. Wait a minute, maybe there should be a 42 in there somewhere….

Thus spake Nostradamus!

(Rates may be out-dated. Please see the Current APY Wiki for updates)

Can you believe it? This morning the Fed issued an emergency rate cut down to 1.5% (from 2%). While this is not unexpected – Wall Street has been crying and blubbering about a rate cut for a while now – the reaction of Dollar [...]]]>

(Rates may be out-dated. Please see the Current APY Wiki for updates)

Can you believe it? This morning the Fed issued an emergency rate cut down to 1.5% (from 2%). While this is not unexpected – Wall Street has been crying and blubbering about a rate cut for a while now – the reaction of Dollar Savings Direct IS surprising.

Instead of dropping their savings rate, which is what tends to happen following the Fed cut, they RAISED their rate from 3.75 to 4% APY. Here are a few highlights of the account:

• Current rate: 4% APY
• Minimum required: $1,000
• Can link up to 2 external accounts

Dollar Savings Direct is a newly-spawned online savings account from Emigrant Bank. I’m still perplexed as to why Emigrant didn’t just raise the rate on their existing Emigrant Direct site instead of creating a brand new division. Oh wait, I forgot about that whole GREED element. You know, that same greed element that’s currently causing our economy to crater?

I’m on the fence as to whether or not I will take the time to open this account. I admit that I sprung for the Washington Mutual 4% offer a few weeks ago, and we saw what happened there. I was only able to enjoy a brief period of high rates before the bank changed names and dropped the savings rate to 3%.

Still, any rate increases are good right now, and I applaud Dollar Savings Direct for raising their rate despite the Fed’s move to punish those of us who keep a chunk of change in savings accounts. I only hope they manage to keep the rate that high for more than a few days/weeks.

This is BAD news for savers. Watch for interest rates to continue their plummet. I predict that ING will be one of the first to slash rates (as usual).

Where/When will it stop? Let’s take a look at past rates. Here is a link [...]]]> Once again, the Fed slashed interest rates – now down to 3%. Ouch.

This is BAD news for savers. Watch for interest rates to continue their plummet. I predict that ING will be one of the first to slash rates (as usual).

Where/When will it stop? Let’s take a look at past rates. Here is a link to the Federal Funds rate history going all the way back to the 1950s. I’ve included a chart of just this decade.

As you can see, the low point really hit in Summer 2003 (recession following the dot-com bust and the 9/11 attacks). Low interest rates helped inflate the housing bubble, which assisting in lifting the market out of its slump.

Now that the housing bubble is bursting, we’re rapidly heading down again. Of course, this is an overly-generalized summary, but perhaps we never really left our previous recession – the inflation of the housing bubble merely steered us away for a few years.

Perhaps I’m wrong (I’m no economist, for the record!). Either way, no one can deny that interest rates are dropping quickly. My magic 8-ball says that we have not yet hit bottom.

Where will it stop? Allow me to make a (hopefully erroneous) prediction – interest rates will hit 1.0% by Summer 2009.

Please let “Chopper” Ben Bernanke prove me wrong. Our last series of extremely low interest rates led to the inflation of another bubble. Let’s hope it doesn’t happen again.

What’s your prediction for interest rates? Do you have a magic 8-ball, too? Is it better than mine?

Guess what? I don’t care. Ever since I simplified my setup, more [...]]]> Earlier this week the Fed slashed the Funds Rate another 0.25%., which means that savings account rates nationwide will undoubtedly begin another session of racing toward absolute zero. ING Direct seems to be leading pack, as their rate just dropped down to 4.2% APY.

Guess what? I don’t care. Ever since I simplified my setup, more of my spare cash is going into a diversified set of mutual funds. Since fretting about savings rates will do absolutely nothing to actually change them, I’ve decided not to worry about them at all.

In fact, dropping interest rates have encouraged me to invest more money into mutual funds. Sure, there is more volatility involved, but the potential returns are much higher, especially over the long term. Aside from my modest emergency fund, I don’t plan to touch my small hoard of cash for the next few years. Therefore, I will stick that hoard into some mutual funds and try my best to forget about it until at least 2009.

The moral of this tale is to keep your eye on the big picture. The market has ebb and flow, but fix your sight on the horizon. Though savings rates may now be the lowest they’ve been for years, they will rise again. After all, it’s in the banks’ best interest to offer high rates because there is more money to be made.

No matter what happens in the short term, keep this in mind: the path to (eventual) financial freedom may be windy and arduous, but two simple tricks will keep you on track:

1. Save a little money every month. Whether it’s 5%, 10%, or 25% (wow!), reserve a small amount of your income as an investment. Make it automated for best results.
2. Take that reserved money and invest it into a low-cost mutual fund, such as an index fund (or perhaps a Target Retirement Fund – which is often a pre-packaged portfolio of index funds.). Put as much as you can into a tax-deferred (or tax-free!) account, such as an IRA.

Let the Fed slash and burn. As long as you keep those two principles in mind, you are bound to come out ahead.

Yes. Yes it is. Run for cover now before it’s too late! Abandon all of your worthless US dollars before [...]]]> In the past few days, we have witnessed the 50-point rate slash by the Fed and parity between the US and Canadian dollar. Now, savings interest rates have been dropping like flies. Is the sky falling?

Yes. Yes it is. Run for cover now before it’s too late! Abandon all of your worthless US dollars before banks actually make YOU pay interest just to have them in your possession. Tell you what: I’ll hang onto them for you while you make a fast getaway. Yes, I’ll bear that burden for you out of the goodness of my heart. No, don’t let my sacrifice worry you, just keep running!

Oh no! The interest rate on my E-loan savings account just went straight down the toilet! It’s now only at a pitiful 5% interest rate. Gasp!

My sources tell me that ING Direct, already the least competitive online bank, has also plummeted from 4.5% to terrifying 4.3%! Those of you suffering through their horribly intuitive website interface and competent customer service – get out now before you owe them money!

Speaking of money, the US dollar now has the same value as the Canadian “loonie”? That does it! From now on, I’ll only accept my paychecks in gold nuggets! Or maybe Denver nuggets.

Chicken nuggets?