Two Que$tions

[Gemini Cricket]

1. Why are annual percentage rates at banks still so low? Pre-9/11, I worked in a bank where the savings rates were at 3% and the checking rate was 1.75%. Post 9/11, it dipped to 1% and 0.250% and stayed there. I thought our economy was getting better?

2. Lots of supermarkets are going to self-checkout registers. ie. Home Depot and Stop n Shop here in Boston (it's like a Ralph's or Albertsons). Now these supermarkets are saving a ton of money on labor costs. But the prices of grocery items are not going down. I don't get that. ie. Home Depot has one person manning 4 self-checkout registers. Before they installed this new checkout system, there were four cashiers manning the registers. Now there is only one. They are saving money with one employee doing the job of four. But the savings is not passed on to the consumer...

Thoughts?

[Ghoulish Delight]

2) Groceries have a fairly inelastic demand curve. i.e., people are likely to continue buying groceries even at higher prices, for the most part. Therefore, there is very little price sensetivity. Lowering prices won't significantly increase the number of people buying the product, so their profit would likely drop. The only reason for a company to lower the price of something is if they think it will increase sales by a percentage greater than the precentage of the price drop.

[Alex]

1) Interest rates at banks don't necessarily have anything to do with how well the economy is doing. They are mostly tied to the prime rate set by the Federal Reserve. The interest a bank pays on checking and savings accounts is essentially they're payment to you for you loaning them money. The prime rate is essentially how much it costs the bank to borrow money from the Federal Reserve or other institutions. Frankly, they'd prefer to go the latter route because it is easier and therefore the rates they offer you are less than the rates the Fed charges because that is the incentive for them to care about "small" retail accounts at all. That said, if you're still only getting 1% and 0.25% you need to do some bank shopping. I'm currently getting about 4.2% on my savings accounts and I haven't rate shopped. I get nothing on my checking (I don't keep enough in checking to earn much interest so it isn't worth the extra fees to get interest bearing checking). Some searching at bankrate.com suggest that the 4.5% range for saving is pretty common.

2) The cost of cashiers is a relatively small portion of the operating expenses of a Home Depot (though a bigger one for grocery stores). Take the annual wage for 3 cashiers and you're probably talking less than a few cents saved per transaction. Plus you have the purchase and maintenance costs of those registers which aren't necessarily cheap but may have other non-monetary benefits to the business. Especially initially since the cost of the registers may not actually pay for themselves in reduced wages for several years.

[katiesue]

2) in my experience the self checkouts didn't replace 4 manned stations. Instead of one checker checking people out that person is now "supervising" four self-checkouts. I don't think they cut personnel.

[Gemini Cricket]

I forgot about this thread. Thanks for your input, everyone.