Bank Rates Feel the Stock Market’s Pain

The U.S. stock market posted its fourth consecutive weekly decline last week, and the volatility of stocks seems to be accelerating. Take your pick of possible causes: continued foreclosures, a weak job market, sovereign debt worries, or simple overvaluation. Most likely, all of the above and more have played a hand in the stock market’s woes.

All things considered, you’d think this would be a good time to be in deposit accounts. That’s not really the case, though. Certainly, it beats the negative returns that stocks have suffered lately, but bank account owners aren’t exactly celebrating. With savings account rates, money market rates, and CD rates already pitifully low, depositors have to be concerned about signs that this latest round of trouble with stocks will bring more downward pressure on bank rates.

Along with the drop in stocks over the last four weeks, interest rates have fallen across almost the entire yield curve since a month ago. Bonds are viewed as a “safe harbor” in times of stock market volatility. As investors flee from stocks into bonds, the demand for bonds drives interest rates down. Ultimately, this can have a spillover effect on bank rates.

Longer term, recent concerns about the economy could make the Federal Reserve and other policy makers remain slow to back off the various measures they’ve taken to keep interest rates down to stimulate the economy. It’s another reason that even though deposit accounts have been safe amid recent stock market turmoil, they haven’t been winners in this environment.