State of the Union: Good or bad for savers?
January 25, 2012
| MoneyRates.com Senior Financial Analyst, CFA
After four years of economic weakness, the 2012 election may well hinge on how voters feel about Washington's handling of the economy. For his part, President Obama tried last night in his State of the Union speech to make the case that his administration is up to the challenge of reviving the nation's finances.
But since the last election, depositors in savings accounts, money market accounts, and CDs have seen their interest rates dwindle to virtually nothing, meaning that savers are sure to be among the frustrated constituencies of the next election.
The question is, who will they blame more: President Obama, who has failed to get the economy up to speed, or the Republicans, who played a bigger role in creating the economic mess than they have in trying to solve it?
For the benefit of bank depositors, here is a summary of how some of the President's major proposals could affect CD, savings, and money market rates:
- Corporate tax reform. The President suggested rewarding companies that create jobs in the U.S., while punishing those who use foreign workers. That populist tone will play well to many ears, but represents the type of interference that can hamper growth and raise prices. Net effect on savings accounts: negative.
- Foreign trade. Protectionist talk is always a good way to get votes, but it is also a good way to fuel inflation. Net effect on savings accounts: negative.
- Infrastructure projects. Well-placed infrastructure projects can create jobs in the short-term, while helping commerce operate more efficiently in the long-term. Net effect on savings accounts: positive.
- Mortgage assistance. The President proposes to charge large financial institutions a fee to fund a refinancing program designed to help home owners keep their houses. As nice as that sounds, the business reality is that customers of those banks will ultimately have to absorb the cost of those fees. So if you are not one of the people receiving this mortgage assistance, you could well end up paying for it in the form of higher bank fees or lower interest rates. Net effect on savings accounts: negative.
- Bank regulation. Bashing bankers will probably remain a popular tactic for years to come, but there is a cost to it. On top of the new Consumer Financial Protection Bureau, Obama announced a special Financial Crimes Unit. This sounds like crossing the line from reasonable protection to piling on costs. Net effect on savings accounts: negative.
- Personal tax reform. There is an increasingly narrow constituency for protecting the wealthiest taxpayers at the expense of tax reforms and lower tax rates for average earners. Because lower earners have a higher marginal propensity to spend, the President's proposal should help the economy. Net effect on savings accounts: positive.
Perhaps the most useful asset you have in making your decision about the election is the several months of time left until you cast your vote. With the economy seemingly at a turning point, whether it can generate any lasting momentum may well decide the outcome of November's contests.
