The Associated Press article: Americans save more but earn less as rates fall provides a very vivid image of what low interest rates are doing for savers (like Grandma in the example) and spenders.

But the government’s policy of stimulating the economy by cutting rates to try to get people to borrow and spend is essentially robbing the elderly of a vital income stream, argued Greg McBride, senior financial analyst at Bankrate.com.

“It takes money out of the pockets of senior citizens and anyone living on a fixed income and gives it to borrowers, many of whom are overly indebted,” McBride said. “It’s as if Grandma stuffed an envelope full of cash, walked down the street and gave it to the guy with two new cars, a big-screen TV and who’s behind on his mortgage.”

For some perspective on the rapid drop in CD interest rates, just look back a year. The interest rate for a one-year CD was 2.53 percent this time last year. Today, it earns just 0.88 percent.

That means a retiree with $100,000 saved in a CD could have earned $2,530 in 2008, or about $211 a month. At current rates, that same $100,000 is earning just $880 year. The retiree’s monthly income has sunk to about $73.

Ugh, it has been depressing watching my savings earn less and less these last couple of years. I am grateful that I was able to create my current cash cushion during the “boom” times and enjoyed interest rates between 3 – 5% that helped build that cushion, but now, given current interest rate conditions, I have started focusing on paying off my remaining debt (the mortgage) and adding to my tax advantage investment accounts (retirement accounts). Putting more of my dollars in anemic interest rate saving accounts just does not make economic sense for me at this time.

But just because I am not actively growing my saving accounts does not mean I want my current bundle of cash to stop working for its keep! That means rate chasing may soon be back on my radar screen. My money is currently split between ING Direct (1.30%) and HSBC (1.35%) which makes moving some money over to Ally (1.65%) tempting.

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