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Interest rate crisis won't solve itself

Pray that the presidential candidates start addressing the problem of consumer interest rates pretty soon.

Things are getting worse, faster.

It probably won't happen, of course, but if the plunge in savings yields continues at the present pace, you'll wind up earning zero on some savings accounts a year or two down the road. But you'll still be forking out 18 percent or more on your credit cards.

Here's why:

In the past three months, your earnings on Money Market Accounts, CDs and interest checking have crumbled as much as they did during the entire first six months of this year.

Let's say you started with $10,000 in January. By July 1, the average interest on your MMAs fell from an annualized $399 to $334, on a one-year CD from $424 to $403, and on checking from $343 to $269.

But since the Federal Reserve cut its discount rate by a half-point in early July and triggered another downslide in savings rates, your MMA interest on the same $10,000 investment has declined to an annualized $287. The CD now gets you only $331 in interest, and checking is returning a paltry $216.

That's the bottom line _ up to this point.

Now, factor in more rate-cutting by the Fed as it once again tries to jump-start the faltering economy, and assume your savings accounts again will get clobbered as much as they have since July. By the first of the year, your MMA could be worth only $250 annually in interest, your CD, $260, and your checking, $165.

Put another way, in one year you would lose 37 percent to 52 percent of your earning power on bank investments. At that clip, by New Year's Eve 1993, your Money Market Account would be earning zip. Moreover, typical bank fees and charges would put your investment in the red.

That's the bad news on the savings side. Here's what's happened to your borrowing costs since last January:

The rates on credit cards, unsecured personal loans and 30-year mortgages have been reduced by only about one-third as much as those in your savings. The average cost of a fixed-rate credit card, for example, dipped from 18.8 percent in January to 18.45 percent in July _ big deal _ and has remained stuck at that level.

Cut to the presidential race:

Do the politicians have anything in their party's platforms or personal economic proposals to halt this trend?

How will the candidates halt a continuing erosion in consumer confidence that has translated into a resistance to load on more personal debt by buying big-ticket items?

How will the next president make it easier for you to get a loan, without just tapping into your individual retirement account, as has been proposed?

I don't hear George Bush, Bill Clinton or Ross Perot uttering a blessed word on these subjects. Yet if they put their heads to the ground, they'll get an earful of the real, gut money issues bothering people as they sadly count what's left in their wallets.

It's okay to pledge economic reform with fancy theory and electioneering buzzwords like "jobs," "lower taxes" and the most important words of all, "cut the federal deficit." But sooner or later, Joe Doaks wants all this explained to him in simple dollars-and-cents language.

For instance:

How will the Bush/Clinton/Perot ideas affect how much you'll probably earn at the bank, or how it might become easier to borrow a few thousand to tide you through the recession?

How long might it take their programs to work? Are we saddled with low savings rates and high loan rates for a couple more years? Or does one of those fellows have a shorter timetable?

In fact, does George, Bill or Ross have the foggiest notion of what's happened to our $10,000 over the past year, and how they plan to correct it?

A little straight talk about your pocketbook might be worth a few million votes.

Latest rate trend: The numbers are still easing, with CDs down as much as three-hundredths of a percent. Bank Rate Monitor's ratio of savings rate decreases to increases remained at 8-to-1. Thirty-year mortgage and new-car loan rates fell seven-hundredths of a percent, to 7.8 percent and 9.26 percent, respectively.

Robert K. Heady publishes Bank Rate Monitor, 100 Highest Yields and other financial newsletters from his office in North Palm Beach.