PUBLISHED: 4:11 PM on Wednesday, October 3, 2007
If you're a saver, you'll earn less
Move by Fed means lower returns for CDs, money markets
Savers will earn lower returns on their money market and certificates of deposit as a result of the Federal Reserve's decision Tuesday to cut the federal funds rate, a local banker said Wednesday.

The Fed's decision likely will weaken the U.S. dollar against world currencies, but on the other hand, certain borrowers may find a bit of relief in their interest rates.

Borrowers whose loans are tied to prime rate will see their interest rates decline following Tuesday's decision to cut the federal funds rate to 4.75 percent from 5.25 percent.

Bank of America and several other of the nation's largest banks cut their prime rates to 7.75 percent from 8.25 percent.

The prime rate is the rate that banks charge their most creditworthy borrowers and is a benchmark for pricing car loans and adjustable rate mortgage loans.

The stock market continued its rally Wednesday, with the Dow Jones Industrial Average closing up 76 points at 13,815, following Tuesday's 335-point surge, the Dow's biggest one-day jump in nearly five years.

Greg Fankhauser, president and chief executive officer of Heritage Bank in Topeka, said the Fed cut had a positive psychological impact on Wall Street, but he couldn't predict how long that mood would last.

Fankhauser said the cut in the federal funds rate would translate into lower returns on money market and certificates of deposit.

This year, depositors have been earning 4.9 percent on one-year CDs in Topeka. Capitol Federal Savings was offering 5.03 percent for 10-month CDs on Wednesday. The Fed's action will translate into a lower value of the U.S. dollar, experts said. The U.S. dollar has been falling the past six years from 90 cents for a euro to $1.38 for a euro Wednesday. The dollar isn't only weaker against the euro and the British pound, but it also is weaker at home as consumers are paying more for goods.

About the only thing that hasn't gone up in price this year is computing power, said Todd Reeves, portfolio manager with Capital Portfolio Management, Topeka. "Milk is way more expensive, college is more expensive, computing power is cheaper, but everything else went up," Reeves said.