Savers, Too, Benefit From Financial Regulation

When President Obama signed into law a landmark bill to overhaul financial regulations this past week, much of the discussion focused on protections for borrowers. But the new law is supposed to make life better for savers, too. Host Liane Hansen talks to Senior Business Editor Marilyn Geewax about the impact of the new financial regulation law on savers and how they may benefit from it.

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LIANE HANSEN, Host:

This is WEEKEND EDITION from NPR News. I'm Liane Hansen.

When President Obama signed into law a landmark bill to overhaul financial regulations this past week, much of the discussion focused on protections for borrowers. But the new law is supposed to make life better for savers, too.

Joining us to discuss the impact on savers is NPR senior business editor Marilyn Geewax. Hey, Marilyn.

MARILYN GEEWAX: Hi, Liane.

HANSEN: Give us a quick recap: What is the goal of this new law with the big name, the Dodd-Frank Wall Street Reform and Consumer Protection Act?

GEEWAX: All right. Well, you know, after that global financial crisis broke out two years ago, Congress decided it was time to reform a lot of the rules that govern the financial sector. There came to be a pretty widespread belief that that the old rules were allowing banks and Wall Street firms to really take too many risks and in too many cases, abuse borrowers.

They wanted some consumer protections written into the law to protect borrowers, but we find that savers, though, are looking for some help too. The last couple of years have been really tough on people who stayed on their budget and tried to save.

The Federal Reserve pushed down interest rates to such ultra-low levels that, you know, it was helpful to borrowers, but it hasn't been very friendly to people who wanted to earn some interest payments on their savings. So you know, if you're invested in the stock market, that was a pretty scary place, too. And now, savers are looking for a little encouragement.

HANSEN: So, explain how savers will benefit from this new law?

GEEWAX: For one thing, these new rules, they virtually ban prepayment penalties on mortgages, except for the first three years of a fixed-rate mortgage. Homeowners can add some extra cash each month to finish paying off their mortgages more quickly and now, they don't have to worry about getting hit with those prepayment penalties that we saw proliferating in recent years.

A lot of financial planners are now recommending that people focus on eliminating debt quickly so that you're in good shape to weather economic storms. And they hope that this new law's elimination of those prepayment penalties, that's just going to encourage that kind of good saving behavior.

HANSEN: Is there anything else in the new law for those who save?

GEEWAX: One feature that a lot of people are going to welcome is this increase in the amount of money that you can have insured by the Federal Deposit Insurance Corporation. Before the financial crisis hit, savings could be protected only up to $100,000 in any one bank account. So, to calm people's nerves back in 2008, Congress temporarily raised that ceiling to $250,000. Under the new law, that's now the permanent ceiling.

And given how risky we've seen investments become in recent years, there's a lot of savers who are going to appreciate having that kind of a convenient safe haven with a FDIC-insured account at their local bank. And you know, in a way, Liane, I know that can sound like a lot of money, but really, a couple that's worked hard and they've scrimped over the years - let's say each one has saved $75,000 - that's their life savings, and they want to know that they can put it in the bank and have all of it protected from a bank panic.

HANSEN: Is there anything in the new law for those people who just like to pay good, old-fashioned cash...

GEEWAX: Cash?

HANSEN: ...for purchases - right.

GEEWAX: What's that? We've all gotten so accustomed to pulling out our credit cards that even when we're buying, you know, a pizza, a cup of coffee, that we've almost forgotten about cash. But credit cards, you know, they're convenient. But they also can load you up with a lot of fees and interest payments if you're not careful. So, this new law specifically allows retailers to offer discounts to consumers who pay with cash or checks or debit cards. Those are those things that look like a credit card but really, they're backed up by the cash in your bank account, or maybe you prepaid and loaded it with cash already.

So, retailers, when they don't have to pay those fees to the credit card issuers, they can pass along savings to you as the consumer. So, this law may help bring back cash, and that can help people stay within their budget.

HANSEN: NPR senior business editor Marilyn Geewax. Thanks a lot, Marilyn.

GEEWAX: Oh, you're welcome, Liane.

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