Fed Mysteries…Explained!
As you’ve probably noticed, there has been a lot of talk lately about the US economy going into recession, mortgage foreclosures, and Wall Street shenanigans. In an effort to soften the blow to the economy, the US Federal Reserve lowered its key Federal Funds rate (the rate at which banks lend money to each other at the Federal Reserve) by 1.25% over the past few weeks. But why should this affect Zopa members?
Well, changes in the Fed Funds rate ripple through the economy in a lot of different ways. In general, the Fed is currently lowering the rate to make capital cheaper and stimulate investment by companies and individuals. That’s great, unless you are the one holding the capital. Savings rates on deposit products move with the market for capital so when the Fed lowers rates, savings rates are sure to follow. (The chart at right comes from an awfully detailed Federal Reserve article that discusses all this.)
So, within limits, the Zopa CD rate will move with the Fed Funds rate moves, particularly the larger ones. As a result, the Zopa CD rate has changed to 4.25% APY today - that’s as high as the second-highest 1-year CD out there (according to Bankrate.com today).
But what won’t fluctuate is our philosophy. The Zopa CD is meant to be a great deal AND a great way to help other people at the same time. No ifs, ands, or buts. Our opera-singing member mavenhaven said it all, when she quoted the late Sen. Paul Wellstone: “we all do better, when we all do better.”
jboltz
Posted on February 7th, 2008 at 6:45 am
So will you be lowering the interest rates on our loans as well? That would be fair, being as you’re not paying out as much, right?