bank rates

Low CD Rates Make Me Less Charitable

Last week, Ben Bernanke assured us that “we are not unaware of the problems that low interest rates cause for savers … and other parts of the economy.”

He added: “(W)e do try to take that into account as we think about other ramifications of our policy.”

I’m skeptical, particularly where the impact of Fed policy on seniors is concerned.

One way those seniors who have regularly saved during their working lives can contribute to economic activity is by giving money away — to family members and to charities.

I’m fortunate enough to have accumulated a sizable nest egg. I also have no dependents.

Under these circumstances, I think society expects me to give back by donating money to charitable causes.

(Of course, I have a healthy ego, which is fed by making donations in my own name. If you ever see “anonymous” attached to a gift, it’s not mine.)

The Fed has put a damper on this.

With a portfolio of low-yielding CDs and Treasuries, I can’t afford to give what I want to charitable causes.

For example, I have an understanding with my alma mater to leave a specific dollar amount upon my death to fund an identified (though relatively small, in the grand scheme of things) long-range project.

Last year, the school had an opportunity to implement this project immediately. It asked me to accelerate my gift.

I pleaded poverty.

Fed policies, I explained, had almost halved my annual income since 2007. And, with the prospect of further declines, I couldn’t take the principal hit.

Had 10-year Treasuries been at 4% to 4 1/2% (the “longer run” target federal funds rate adopted by 16 of 17 Fed board members and bank presidents), I could have afforded the gift.

Of course, a key reason I’ve limited my portfolio to low-yielding, riskless investments is to preserve principal — to have it available to eventually give away!

But now — with the Fed explicitly adopting a 2% annual inflation target — I can be sure this principal will be worth a lot less if I live a normal lifespan.

I suppose, with so many seniors forced to live from one Social Security check to the next, many wouldn’t consider this a problem.

But I don’t see it that way — and neither, I suspect, do many educational and charitable institutions.

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Comments (2)
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2 Existing Comments
  1. Joe George said:
    on February 3rd at 12:14 pm

    The reason why the Fed is extending the low rates is to avoid increasing the cost of the United States debt.

  2. Bob Johnson said:
    on February 3rd at 12:36 pm

    Charities are having a tough time just like the rest of us. I was doing well 5 years ago and donated appreciated stock (tax advantages) to my university. They ask for more, despite the fact I already gave them 50 times what would be a large annual donation. I figure I have contributed up to 2057, and they will have to wait until I’m dead to get what I left them in my estate plans. I need money for me in this economy !