Tuesday, August 16, 2011

Just When You Thought It Was Safer To Stay In Cash

Bank depositors are certainly dissatisfied with the interest they are earning on their savings. Things may go from bad to worse, however. This is because banks may soon start charging their customers for the privilege of banking with them.

On August 4, 2011, Bank of New York Mellon announced that it will charge large depositors for the privilege of allowing the bank to hold onto their money. Why would the Bank of New York impose such a cost on depositors? Simply put, it was losing money. How was it losing money? As part of the Dodd-Frank Bill that was established to strengthen banks and limit future runs on banks, fees assessed by the Federal Deposit Insurance Corporation (FDIC) increased, and they are now based on the amount of excess capital held by a bank over a threshold. With so much economic turmoil, investors have been increasing their cash deposits with banks. And this has resulted in greater costs to the banks.

Currently, this applies mainly to institutions who hold the largest cash reserves. However, charges affecting institutional investors have a way of costing the public. Also, according to Dan Geller, executive vice president at Market Rates Insight, "It's very likely that this trend will trickle down to retail customers."

Stay Tuned. It is never boring.

The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, you should consult a financial advisor prior to investing. Past performance is no guarantee of future results.