Bank Rates Sleep Through Recent Economic GyrationsBank-Rates-Sleep-Through-Recent-Economic-Gyrations.htm
March 08, 2010
| MoneyRates.com Senior Financial Analyst, CFA
There's been a fair amount of drama on the financial and political scene lately: A sovereign debt crisis in Europe. A massive recall by the world's largest automaker. A series of high-profile departures or planned departures from Congress, some of whom made no secret of the fact that they are walking away in disgust. Releases of the usual series of economic indicators has come and gone, mixing glimpses of hope with dashes of despair.
This kind of turmoil breeds uncertainty among investors, which is why the financial markets have had their ups and downs through all this news. However, the uncertainty has had just the opposite effect on savings account rates and other bank rates.
Uncertainty Rocks the Financial Markets
Since the beginning of 2010, the stock market has been on a fairly bracing ride. The Dow Jones Industrial Average has soared to a height of 10,725, fallen all the way down to 9,908, and then bounced back to a level somewhere between the two extremes. Oil, meanwhile, has seen a swing of 13% between highs and lows already in 2010, and gold prices have been fairly volatile as well.
Bonds have also had their ups and downs, and this what should most directly interest watchers of bank rates. As bond prices rise, their yields fall; as bond prices fall, yields rise. Anyone looking for higher bank rates should be rooting for bond prices to fall. A sustained rise in market interest rates should eventually trickle down to savings account rates, CD rates, and money market rates.
Like other securities markets, bonds have yet to make a definitive move in 2010, instead riding a roller coaster. For instance, 5-year Treasury notes have seen yields swing from a high of 2.65% to a low of 2.23%--a change of 42 basis points, which is a pretty hefty portion of current yield levels.
What do all the ups and downs mean? The state of the economy, both here and abroad, remains highly uncertain. Economic optimism sends stocks and commodity prices higher. Bond prices fall on economic optimism, so yields rise. The ups and downs of all of the above show just how variable the economic news has been.
Uncertainty Rocks Bank Rates... to Sleep
Meanwhile, according to the FDIC, national average savings account rates sat quietly at 0.21% as of the middle of February 2010--pretty much where they've been for the past few months. Why hasn't economic uncertainty led to more action in bank rates, the way it has in the financial markets? There are really two reasons.
- While freely traded markets attempt to anticipate trends, banks tend to react to them in setting deposit interest rates. That's another way of saying that banks have the luxury of sitting back and waiting to see what happens. Uncertainty tends to encourage inaction in bank rates, until a clear direction--good or bad--is established.
- Current bank rates are decidedly in the favor of banks. With bank rates so low, banks aren't going to be in a hurry to pay higher rates until conditions force them to. Meanwhile, they will happily default to keeping rates low for savings accounts, CDs, and money market accounts.
Average savings account rates aside, there are real and substantial differences among the rates offered by various banks right now. In the absence of market movement, you can reward yourself--and the banks who are offering the best savings account rates--by actively shopping on MoneyRates.com.
