Bank Rates Had a Decent Decade, Despite a Weak Finish
January 28, 2010
Despite the way it ended, the first decade of the twenty-first century wasn't a bad one for bank rates. All things considered, depositors in conservative bank accounts have come through the past 10 years smelling like a rose.
A good way to measure what kind of a decade it was for bank rates is to use 1-month CD rates as an indicator, because this is one of the historical data series available from the Federal Reserve. Besides providing some perspective on changes in CD rates over the course of the decade, 1-month CD rates are short enough to be somewhat comparable to savings account rates and money market rates.
Not a Great Finish for Bank Rates
Depositors might not remember the decade so fondly simply because of what happened to bank rates at the end. As of November 30, 2009, 1-month CD rates looked poised to end the decade at or near a record low. That low--of 0.18%--gave new meaning to nicknames for the decade such as "the oughts" or "the 00s." It seemed as much a description of the level of bank rates as it was a reading of the zeroes on the calendar.
CD rates around 0.18% were all the more jarring because of how far and fast those rates had fallen. As recently as 2007, 1-month CD rates were above 5%. It's been a long way down since then.
A Broader Perspective
Still, you could have done worse than invest in CDs or other deposit accounts through the past 10 years. Those 1-month CD rates averaged a little over 3% for the decade. Not spectacular, perhaps, but since inflation behaved itself by averaging just over 2.5%, it was enough to get ahead.
The historical perspective on bank rates gets even better when you consider that the stock market was more than 20% lower at the end of the decade than at the start. In short, bank rates may have ended weakly, but in context, they didn't have too bad a decade.
Source:
istorical Prices for S&P 500 Index, 1950 - 2009 • http://finance.yahoo.com/q/hp?s=%5EGSPC&a=00&b=3&c=1950&d=11&e=28&f=2009&g=m&z=66&y=66 • Yahoo! Finance
