The Federal Reserve, which cut its target for the federal funds rate to a zero-to-0.25 percent range on Dec. 16, 2008, said last month that rates would remain “exceptionally low” at least through late 2014. While the unprecedented period of near-zero rates is meant to aid an ailing economy, it poses challenges for banks, insurers, pension funds, and savers.
The hope is that by making mortgages and other loans cheaper, ultra-low rates eventually may revive economic growth. For now they’re squeezing profits at banks and disrupting investment strategies at insurance companies and pension funds. They’ve reduced payouts on savings accounts and bonds, and may lead to higher bank fees and insurance premiums. “For most people, there’s been more downside to these low rates than upside,” says Barry Ritholtz, CEO of Fusion IQ, an independent research firm. “They’ve punished savers and people living on fixed income, and made insurance more expensive.”