Three Cheers from Money Rates

Preliminary estimates of third-quarter GDP growth suggest that--though the labor market is still lagging--the long recession may have finally ended. Economic growth is good news for everybody, but those with CDs, savings, or money market accounts have three particular reasons to cheer.

How Bank Rates Improve on Economic Recovery

1. Bank rates should benefit as the economy gets rolling. Weak economies often mean low interest rates, and in this recession, the government took extraordinary steps to keep rates low. As those interventions are unwound, and as a recovery in the lending business makes banks want to attract more savers for capital, you should see CD rates, savings account interest rates, and money market rates start to move up.
2. Savers can sleep more securely at night. Even with FDIC insurance as a backstop, the news of bank failures is unsettling to anyone with large deposits at those banks. Don't expect such news to stop overnight--some bank failures will continue as problems from recent years are still coming to light--but you can look forward to the problem starting to get better rather than worse.
3. Long-term savings rates may benefit from the experience of this recession. US savings rates improved in this recession, partly because people tightened their belts, and partly because sources of credit dried up. What the recession revealed was that many Americans have long been negligent about saving for retirement. If you were able to boost your savings rate during the recession, apply some of those same tactics during the next economic expansion and you should really be able to get your retirement savings plan on track.

Despite a possible improvement in savings rates, nobody would argue that anything good came out of the recent recession. It appears to have been the longest economic contraction since the Great Depression. Like the Great Depression, it will be something that people who lived through it will always remember, even as they happily watch it recede further and further into the rearview mirror.

Source:

Jeannine Aversa • Economy growing but recovery could be at risk • Oct 29, 2009 • Yahoo! Finance : http://finance.yahoo.com/news/Economy-growing-but-recovery-apf-3242332094.html?x=0&sec=topStories&pos=main&asset=&ccode=

US Business Cycle Expansions and Contractions • National Bureau of Economic Analysis: http://www.nber.org/cycles/cyclesmain.html •

AP • Fed Chief: Recession "Likely Over" But... • Sep 15, 2009 • CBS News: http://www.cbsnews.com/stories/2009/09/15/national/main5312470.shtml