Tags: economy | rates | spend

Report: Low Interest Rates Mean More Cash For Americans

Tuesday, 27 Mar 2012 08:49 AM

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Historically low interest rates are increasing Americans' savings by an average of $3,000 a year per household, USA Today reports.

Money normally lost to servicing interest on debts is headed out into the economy even at a time when incomes fall.

Americans are spending 5.8 percent of their after-tax income paying interest on mortgages, credit cards, car loans and other debt, the least since 1977 and well below 9.1 percent in 2007, USA Today says, citing data from the Bureau of Economic Analysis.

In dollar terms, household interest payments averaged $469 per month at the end of 2011, down from $728 in 2007, and after adjusting for inflation, the difference equals around $3,100 a year.

"Even if people aren't paying attention to their interest payments falling, the money builds up in their checking account, and that especially benefits big ticket items like cars," says Paul Taylor, chief economist for the National Automobile Dealers Association, the newspaper reports.

Interest rates aren't likely to rise any time soon.

Federal Reserve chairman Ben Bernanke has said economic conditions warranting near-zero interest rates will stick around through 2014, and has hinted that more extraordinary measures may be need to prime the economy and encourage more hiring, including a third round of quantitative easing (QE3), which are asset purchases from banks designed to jolt the economy despite inflationary effects that may arise down the road.

"Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies," Bernanke said in a recent speech, which sparked market talk that easing is definitely up for consideration.

"Bernanke indicated that the door is wide open to QE3," says Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt, according to Bloomberg.

"As long as the market think QE3 might happen, then that will be negative for the dollar. We have seen two spectacularly bad days for the dollar and now we are losing a bit of momentum."

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