Following the Chain of Events to Higher Bank Rates

Are you impatient for higher savings account rates? Wondering if money market rates will ever move higher rather than lower? Agonizing about rolling over a CD at current CD rates?

Simply waiting for bank rates to move can be a frustrating exercise. It can help if you know to look for some early clues to higher rates.

On Monday, this blog explained that bank depositors have an indirect stake in the second quarter corporate earnings reports which started being released this week. To understand how that might actually play out, think of it as a chain reaction, in three steps.

1. The economy shows signs of hope. Bank rates can rise for two reasons -- because of economic improvement, or because of the threat of inflation. If inflation carries bank rates higher, it won't really do depositors any good, so the best hope lies in economic improvement. Individual earnings reports only give micro glimpses of economic conditions, but if enough positive results accumulate, it paints an optimistic picture. Also, certain stocks are considered bellwethers -- for example, Intel's positive earnings were considered a sign that business investment is picking up.
2. Investors react with optimism. This means stocks rise, while bonds fall. When bond prices fall, yields on bonds rise. 10-year bond yields have moved higher over the past week, but are climbing back from extremely low levels. They have a long way to go yet.
3. Bank rates respond to the changing interest rate environment. Higher bond yields means a generally higher interest rate environment, and eventually banks will have to respond to that. However, they won't respond all at once, so shopping on MoneyRates.com can keep you ahead of the curve when it comes to capturing the first bank rates to move higher.

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