Americans Divided On Historically Low Interest Rates

Interest rates have hit record lows this summer, and they're projected to be low for some time. Audie Cornish checks in with people from around the country to find out how it's affecting them. We hear from a county in Kansas that's taken advantage of the moment to re-finance all its debt, saving the county nearly $1 million. We also hear from a small business owner about her efforts to get a new loan to expand her business. We hear from a homeowner who, despite having good credit and stable income, is unable to refinance to a lower rate. And we check in with a personal finance columnist to hear about where you might put your savings while interest rates remain rock bottom.

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AUDIE CORNISH, HOST:

From NPR News, this is ALL THINGS CONDSIDERED. I'm Audie Cornish.

This week, the Federal Reserve acknowledged that the U.S. economy is losing strength. Economic recovery has been disappointing, and record-low interest rates have not proven to be as helpful as some predicted. As it happens, they also mean different things whether you're a borrower or a saver. Thirty-year-fixed home mortgage rates of 3 and half percent are one thing; earning less than a percent on your savings account is another.

To get a sense of how rock-bottom rates are affecting the country, we decided to reach out to a cross-section of people. In a moment, we'll hear from a county official, a small- business owner and a personal finance expert. But first, a homeowner. Julie Sawitky(ph) and her husband are federal employees who have been prudent about their money. They max out their 401(k) contributions. In addition...

JULIE SAWITKY: We try to save up to 10 percent of our paycheck into a savings account. However, sometimes it doesn't seem like it's worth it because we earn so little interest.

CORNISH: What interest rates are you getting right now; and what was it like trying to shop around, to find a good interest rate?

SAWITKY: Point eight percent is what we're earning now, and we can only get that rate online.

CORNISH: What are your hopes for the future, in terms of savings? I know that - do you have children, or sort of...

SAWITKY: We have four children; one is in college now. And we have student loans that are going to be coming soon because we don't have enough to cover everything. So we're saving for that. We have 529 Plans for all of them. And the future? We're just hoping that our property values come up because that is our biggest asset - is our house, and we are underwater at the moment. And we'd like to refinance to be able to save money - more money. But that's impossible because banks won't work with us.

CORNISH: So even though there are good interest rates out there, you can't take advantage of it in the case of, say, refinancing.

SAWITKY: Not really because when you're underwater, banks don't want to work with you. We have excellent credit; we have no other debt. And they just won't take the chance of refinancing us at what we need to refinance at.

CORNISH: What is this like for you, looking at your savings account - which has such a tiny interest rate - and then not being able to refinance again? I mean, how does it make you feel?

SAWITKY: Very frustrated. You know, they tell you to save money; to save for your retirement and the future, or what have you. And doing that seems kind of a waste because we can't even keep up with inflation. So it is a little frustrating. We feel very stuck.

CORNISH: That's Julie Sawitky of Frederick, Maryland. Well, we wanted to put Julie's financial story in perspective, so we called Matthew Amster-Burton. He's a personal finance columnist for Mint.com. Welcome, Matthew.

MATTHEW AMSTER-BURTON: Thanks for having me.

CORNISH: So put this in context. How bad is it for savers like Julie, at the moment?

AMSTER-BURTON: It's pretty bad. And .8 really is about the best you're going to do for an online savings account. I've seen as high as 1 percent, which by historical standards - it's really terrible. She does have some other options that she can think about. One of those is I Bonds, which are U.S. savings bonds, so they're equally safe. They're backed by the full faith and credit of the U.S. government.

The great thing about I Bonds is that they guarantee never to pay less than the rate of inflation. So right now, they're paying 2.2 percent. And they're not quite the same as a savings account. But you can buy I Bonds for as little as $25 at a time, and you only have to hang on to them for a year before you can cash them in. So they're good for medium- to long-term savings.

CORNISH: And that's from the Treasury Department. What are the other alternatives out there?

AMSTER-BURTON: So one other alternative is a high-interest checking account, which are sometimes called reward checking accounts, or Kasasa accounts - is a brand name used by community banks and credit unions that offer these. And this is a checking account that pays a relatively high rate of interest - up to about 2 percent at the moment - but you have to play by their rules. And what that means is, use your debit card a lot. So as long as you're willing to use your debit card, say, a dozen times a month, and sign up for direct deposit and e-statements, you can get a much higher rate of interest on your first 10,000, $20,000 or so.

CORNISH: Matthew, essentially, the low interest rates have been billed as something that could help consumers. But in the end, do you think that it has helped or hurt? I mean, can people truly take advantage?

AMSTER-BURTON: Well, not everybody can access low rates as a borrower. The good news is that anyone who is a saver can access the best rates that are available to anyone, as a saver. Unfortunately, those are not very high. I think you have to put this in some international and historical perspective - which is that as bad as things are, it could be a lot worse. We could be in a Japan-like deflationary scenario, which we're not. We could be in an even worse scenario, where we had hyperinflation; or where we put money in the bank, and couldn't even count on getting the money we put in the bank back. But we have a functioning deposit insurance system. We don't have runaway inflation. As much as we can, when we're talking about rates of interest less than 1 percent, we should try and count our blessings.

CORNISH: That's personal finance columnist Matthew Amster-Burton. And among those counting their blessings - state, county and municipal governments. From Florida to Oregon; from Texas to Missouri; governments have taken advantage of this moment to refinance their debt. Douglas County, Kansas, had issued bonds in recent years to build a jail and a law-enforcement facility, among other projects. This spring, as interest rates fell, they moved - quickly.

Mike Gaughan is the chairman of the Board of County Commissioners.

MIKE GAUGHAN: The reason we jumped on board this year was, quite frankly, we've been watching the interest rates. And we've been watching the potential for savings over the last couple of years. And this spring, we just saw a really great opportunity for the county to refinance all of our bond issues. And we ended up saving almost a million dollars.

CORNISH: A million bucks?

GAUGHAN: Well, over the seven years or so that we anticipate realizing the savings; that's over $100,000 a year. Our budget debate every year seems to come down to about $100,000. So, when we look at things like the increase of costs in our health care, and providing it to our employees; or the increasing cost of running a county government; $100,000 - or $130,000 is a pretty substantial savings, and opportunity for us to hold down our mill levy here, or hold down our property taxes.

CORNISH: Now, with interest rates so low, then, are you thinking of doing any other infrastructure projects?

GAUGHAN: Well, we have some very concrete - um, pardon the pun - we have some very real projects that we're looking at, over the next couple of years. We have the Emergency Radio Project, to basically redo all of our emergency radio systems. We also have a public works building that we are in the process of - our Public Works Department is split between two less-than-ideal locations. And because of the opportunity to finance at these rates, plus the opportunity to take advantage of some of the savings we have in construction and in actual building costs, we're looking very seriously at those.

CORNISH: That's Commissioner Mike Gaughan in Lawrence, Kansas. Well, about the same time Douglas County was looking seriously at their numbers, so was Rania Jaziri. She's the owner of Jordin's Paradise, a fitness and dance studio here in Washington, D.C.

RANIA JAZIRI: We offer a wide variety of classes, from traditional - yoga, kickboxing, Zumba - to nontraditional, like pole dancing - and belly dancing as well.

CORNISH: After a successful first two years, Jaziri decided to open a second location. She sought a low-interest loan, something she kept hearing about.

JAZIRI: I tried to apply for a couple of loans in - back in November, December. I had a really, really, really hard time, and it was very upsetting. And I've gotten a lot of no's from a couple of bigger banks, where they have said that they have low interest rates for small businesses. However, they had some rules and regulations, where you have to have three years in business; you have to have $250,000 revenue - which is not a small business, in my eyes.

CORNISH: So in the end, what kind of loan, and what kind of interest rate, did you end up with?

JAZIRI: Well, we got $10,000 only, even though we wanted a little bit more. So it was $10,000, for 5 percent.

CORNISH: So 5 percent, was that the best you could get? Were there lower ones that you didn't get?

JAZIRI: There were lower ones that I was not able to get because of those rules and regulations that they had. And I know it's hard, sometimes, to find out if that business is legit, and if they really can pay you back. But at the same time, when you have a small business that is doing well for itself, then you should support it because we need more jobs; we need more businesses doing well. If I would get $50,000 today, I could open up another studio; I could create 10 other jobs. It's that simple.

CORNISH: Is there the demand for it, you feel?

JAZIRI: Yes, absolutely. We have demand all over the place. People have called me and said, why don't you open up one in Alexandria, or Arlington? And I just have to say, I don't have the start-up money for it right now - because you need the studio; you need the build-out; you need the advertisement; you need the marketing. So at least 50- to $60,000 to start up. Once the studio is up, we can fill it with people. But the beginning, that's the hardest part.

CORNISH: That's small-business owner Rania Jaziri. For what it's worth, the Federal Reserve has indicated it'll keep interest rates low, for the foreseeable future. And this week, it promised to take further action in the fall, if things don't get better.

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