The Bright Side of Savings Account Interest Rates

Treasury bond rates fell again last week, continuing a somewhat odd habit they've shown in recent months. This isn't good news for anyone waiting for savings account interest rates to rise, but there is a bright side to the story.

First, about that odd habit. Last week was a bad one for the stock market, as jitters about the economy -- highlighted by a disappointing unemployment report -- replaced some of the optimism that had prevailed for several weeks. Meanwhile, Treasury bond yields fell last week. No surprise there -- bond yields are expected to fall when there is pessimism about the economy, and when investors are moving away from stocks. The only odd part about it is that bond yields haven't seen proportionate rises when there is good news about the economy. Nor was there evidence of a large-scale flight from the bond market (which would cause yields to rise) when stocks were rallying.

Since Treasury bonds are a decent barometer for the direction other interest rates, including savings account interest rates, are likely to take, the downward bias on the part of market rates is not good news for savings account depositors. However, comparing savings account rates to Treasury bond yields does highlight the one piece of good news. The average savings account rate on money-rates.com was 1.51% as this week began. That's higher than even a 3-year Treasury yield -- and significantly higher than the sub-1% yields on Treasuries two yields or shorter.

What does this mean? It means that bank rates are looking like a pretty good deal. They may seem low in absolute terms, but as a place for government-guaranteed, short-term money, they have a clear edge over Treasuries right now.

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