When interest rates tumbled, cost-conscious Utahns lined up in droves to refinance their home mortgages or seek low-interest loans to consolidate debt.

But for institutions and retirees who rely on interest income, the falling interest rates have cut some incomes by half and forced many people to rethink their investment strategies."Many of those people are suffering and that's kind of the untold story in the economy," said Jeff Thredgold, senior vice president and chief economist of KeyCorp.

Roger Smedley, a certified financial planner, said a number of clients whose money was invested in certificates of deposit received unwelcome news when their CDs matured and they discovered that CD rates had fallen to 3.8 percent instead of the 8- and even 10-percent rates their previous investments carried.

"You could call it sticker shock or CD shock," he said. "The inflation rate is about what the CD rate is. That's where the pinch is."

One of his clients, an 87-year-old widow who lives on interest income and a modest monthly Social Security check, was stunned by possible fallout of the rapid decline in interest rates. So was her family.

"I was not aware it was going to drop that much. I think she was totally unaware," said Patricia Hirschi of her mother-in-law's investments.

Smedley helped the woman redirect her investments into tax-free municipal bonds. "This is exactly why you should diversify," Smedley said.

On balance, most consumers are hurt by declines in interest rates, Thredgold said.

"Thirty years ago, interest income accounted for only 6 percent of total personal income. Right now, it's 15 percent of total income," he said.

Utah art organizations, particularly those with large endowments, are keeping a watchful eye on interest rates.

"We invest our money in a balanced portfolio so it's not totally sensitive to fluctuations of the interest rate," said Doug Neiswender, finance director of the Utah Symphony.

Yet, the declining rates will impact the symphony's budget since it relies on interest income for about 10 percent of its operating revenue.

"We're projecting that revenue will be down this year. We're expecting a $30,000 shortfall because of that," Neiswender said.

Ken Hill, president of Ballet West, said the ballet also has felt the pinch of the lower rates.

"We do have some money marketsthat it's affecting to some degree. Most of it is in longer-term (investments). I'm sure when we have to renew the certificates at 4 or 5 percent then it (the return) will tremendously drop from what our expectations have been historically," he said.

View Comments

A greater concern, however, is determining the best investment strategy for a new endowment the ballet will soon receive. "We're going to have to look at common stock or some other higher yielding type of investment. But with that comes more risk," Hill said.

For every baby boomer scrambling to refinance his mortgage, other consumers - many of whom are wary of the unstable economy - are postponing big-ticket purchases such as automobiles and home appliances.

Consumer confidence continues to be low because the federal deficit, employment instability and the decline in interest rates have reduced consumer income, Thredgold said.

"Not only do they not have the psychological interest in spending, they don't have the money," he said.

Join the Conversation
Looking for comments?
Find comments in their new home! Click the buttons at the top or within the article to view them — or use the button below for quick access.