OK, class, it’s time for the surprise quiz you’ve been warned about. But cheer up; it’s only one simple question from the “Do-You-Know-What-Your-Government-Is-Doing?” category.
Here’s the question:
If you were happily married and had $1 million waiting to be invested, where could you safely invest your money so that your annual income from that million would be lower than the official poverty level of $14,710 for a couple?(Yes, I said “lower,” not “higher.”)
Stumped? Here’s a hint. There are lots of places like this. You can find one where every missing gas station used to be.
Still stumped? Well, I can only say it is fortunate that no more is at stake than your future.
The answer: You could keep your money in any bank in America! Only in America could you have a million dollars and be nearly certain that your income would be below the official definition of poverty.
We’re not talking about a handful of piker banks here. We’re talking about almost every bank. We’re particularly talking about big banks.
According to www.bankrate.com, for instance, the highest yield in America on a one-year jumbo certificate of deposit is about 1.25 percent from E-loan, an online bank. That would get you $12,500 a year in interest on your million, so your income would be safely under the $14,710 poverty limit.
You could breathe a sigh of relief— your million won’t come close to pushing you into tacky displays of excess wealth such as the regular purchase of groceries by senior citizens.
The E-Loan rate, of course, is much higher than the national average rate that bankrate.com calculates, 0.48 percent for one-year jumbo CDs. Go to Bank of America, the largest of our deposit institutions with over 6,000 offices, and your million dollar one-year CD will earn a charming 0.50 percent, or $5,000 a year. You won’t have to worry about the wolf wandering away from your door— he’ll be right on your welcome mat, wagging his tail.
But why single out Bank of America? Wells Fargo and JPMorgan Chase are nearly as large with over 6,500 offices and 5,200 offices, respectively. Your million dollars will earn a whopping 0.15 percent at Wells Fargo. It will keep up with BofA at Chase.
You could, of course, increase your income from that million by committing for a longer time period. The www.bankrate.com average yield for two-year CDs is slightly higher at 0.66 percent. The website lists Aurora Bank as the highest payer for two-year CDs at 1.45 percent. That would allow your million to earn $14,500, only $210 below the official poverty rate for a couple! Significantly only 21 banks on the bankrate list are willing to pay over 1 percent.
Allrighty, then— let’s push out to a three-year commitment. Again, most banks in the country will happily support us at a sub-poverty level for our $1 million deposit. The bankrate site shows a national average for three-year CDs at 0.97 percent, indicating an income of $9,700 from a million dollar deposit. Aurora Bank holds the top spot again at 1.74 percent. The interest income from this CD, at $17,400, would exceed the poverty limit. You’d have no trouble staying below the poverty level by sticking with typical banks because only 21 banks were willing to pay 1.4 percent or more.
Only when we make a five-year CD commitment— a commitment that involves significant interest rate risk— is it likely that you’ll cross the poverty line. The bankrate tally shows an average yield of 1.63 percent, a yield that would earn you $16,300 a year. That’s a perilous $1,590 over the poverty limit. Think you could handle it?
If celebrating being able to live below the poverty line while having a million dollars strikes you as perverse, you’re right. It’s also damaging to everyone. As I pointed out last year in “Solvent Seniors and the Matrix of Misery,” our ongoing Federal Reserve low-interest rate policy reduces the spending power of retirees who have saved money. That spending power, in turn, could stimulate the economy, create jobs, and restore the income of millions of people who aren’t retired and haven’t got a dime.
That, which the anointed ones in Washington have forgotten, is what our recovery is supposed to be about— more jobs, producing more income, from healthy spending and productive investing.