Bank Rates At Risk When Stock Market Falters

It was more tricks than treats for the stock market as the month of October wound down, but if bank depositors think the stock market's woes don't concern them, they may also be in for an unpleasant surprise.

The Dow Jones Industrial Average had four days with losses of a hundred points or more in the last six trading days of October. Explanations vary, including concern that the economic recovery cannot be sustained without further government stimulus, unease that there may be another shoe to drop in the banking crisis, and simply that the stock market had risen too far too fast and was due for a fall.

How does this concern bank depositors, with their nice, safe CDs, savings accounts, and money market accounts?

The issue is that when the stock market is shaky, there is a flight to quality -- investors pile into conservative, interest-bearing securities. That drives the prices of those securities up -- and their yields down. If this is more than a case of temporary jitters for the stock market, that can affect interest rates generally, including bank rates.

For example, after reaching its highest point in two months, the yield on ten-year Treasury bonds fell off sharply during the stock market's recent struggles. Again, if this is just a passing nervous spell for the stock market, the impact shouldn't filter through to bank rates. However, if we see a sustained slide in stocks, it will be just one more factor keeping bank rates at their current anemic levels.

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