by Adam Netland, Senior Asset Manager, Wealth Enhancement Group

You may be wondering, why your savings accounts are earning such low interest these days? While low interest rates have aided borrowing, they have penalized savers; and that is exactly what Mr. Bernanke and the Federal Reserve Bank want!

The long-term role of the Federal Reserve Bank is to provide a balance between economic growth and low inflation. When the economy is in a recession, the Federal Reserve lowers interest rates, discouraging you from keeping investments in cash, and encouraging you to take out loans, invest in companies, buy homes with a low mortgage rate, and help spur the economy to grow.

On the other hand, if the economy is growing too fast, and there’s too much money sloshing around the system, we face the threat of inflation. Inflation is an economy’s worst enemy; if people fear that prices will rise too rapidly, the local currency loses its value as storage of wealth. People will spend money quickly and avoid building up needed savings. If inflation is a future concern, the Federal Reserve Bank reverses course and tightens up the money supply by raising interest rates. This will encourage you to save your money in cash at higher rates, while discouraging you from taking out higher interest rate loans, and also slow the growth of the economy, which will help keep inflation in check.