Better Bank Rates in 2010? Three Things to Look For

Tired of meager savings account rates? Were you shocked by low CD rates when you had to roll over an old CD recently? Depositors all over the country spent 2009 in much the same way--waiting expectantly for bank rates to bounce back, only to see them slip still lower.

Will savings account rates, CD rates, and other bank rates be any stronger in 2010? It's still too early to tell, and there is so much economic data swirling around that it can be difficult to know what to follow, let alone which trends constitute good news. However, here are three factors to watch as 2010 gets underway, because of their impact on your bank deposits:

1. The job market. Even if you are retired or steadily employed, you should be rooting for strength in the job market. Bringing unemployment back down into the single digits is important for the stability of the housing market (as people lose their jobs, foreclosures rise), which remains a potential source of trouble for the banking system. Higher employment also goes hand-in-hand with economic growth, which can set the stage for higher bank rates. So far, the employment market has shown early signs of stabilizing but is far from recovering.
2. Lending activity. In 2009, most people didn't want to borrow and most banks didn't want to lend. This was a necessary respite for both, but ultimately, a pick-up in lending activity is important to economic growth. Without it, banks don't have much incentive to raise interest rates to attract deposits.
3. Inflation. Higher rates won't be much good if they are eaten away by higher inflation. The deflationary period is probably over, but as long as inflation is reasonable, bank rates can stay ahead of it. One key: after rising for much of 2009, oil prices moderated a bit in early December 2009. If there are no spikes in commodities like oil, and with plenty of slack in the labor market, inflation can stay low even as the economy strengthens.

 

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