Latest reader poll shows dwindling confidence in economic growth

A new poll conducted jointly by MoneyRates.com and GetRichSlowly.org finds that confidence in the U.S. economy's recovery and growth has deteriorated in the past few months. These results reflect just how badly economic growth has stalled and might also be a sign of more trouble to come.

Unfortunately for bank depositors, these poll results are yet another worrisome indication that we may be in for a sustained period of low interest rates on CDs, money market accounts and savings accounts.

Where the economy sits now: increasing pessimism

The online poll ran jointly on MoneyRates.com and another personal finance website, GetRichSlowly.org, through most of August 2010. Readers were asked, "Where do you think the economy sits right now?"

More than 2,500 people responded, and here's how the answers broke down:

• Strong growth--full steam ahead: 1 percent
• On solid ground and growing some, thank goodness: 11 percent
• Stagnant. Not growing, but at least not getting worse: 37 percent
• Not horrible, but looks like it's going downhill: 30 percent
• Free falling--I'm bracing for the worst: 20 percent

The same poll question was posed on both websites previously to get snapshots of reader sentiment over time. The last time this poll was conducted was April 2010, and the differences are striking.

Between April and August, the percentage of respondents who were optimistic about the economy (that is, felt that there was "strong growth" ahead or that the economy was "on solid ground") dropped from 29 percent to 12 percent.

At the same time, the percentage of those who were pessimistic (reporting that the economic outlook was "going downhill" or "free falling") rose from 30 percent to 50 percent.

How confidence affects economic growth

The deterioration in confidence about the economy reflects the slowing of economic growth throughout 2010. In the fourth quarter of 2009, the economy grew at a promising pace of 5.0 percent. However, economic growth slowed to 3.7 percent in the first quarter of 2010, and to 1.6 percent in the second quarter.

But consumer and business confidence not only reflects existing economic conditions, it can also influence future conditions.

This dwindling confidence could further put the brakes on the economic recovery. People who lack confidence in the economy don't tend to spend as much money. Businesses that lack confidence in the economy don't expand their hiring. To some extent, a lack of confidence can become a self-fulfilling prophecy.

Effect on CD rates and other deposit rates

All of this has a few implications for consumers shopping for the best CD rates or other bank deposit rates:

• With the recovery apparently stalling, don't expect a rebound in interest rates on CDs, money market accounts and savings accounts anytime soon.
• Since interest rates are likely to stay low in the months ahead, don't be afraid to extend a CD term out to a year or so to get a little higher yield. Locking into a multi-year CD at today's extremely low rates would expose you to the risk of interest rates rising later, while your money is still committed in the CD--but a one-year CD seems reasonable.
• Compare banks to find the most favorable offers on money market rates, savings account rates and CD rates. Rates are likely to stay low as economic growth stagnates and the Federal Reserve keeps up its stimulative low-interest-rate policies--so if you are waiting for interest rates to rise on their own, you'll be waiting a while. To do better for your accounts, take matters into your own hands by comparing banks and actively seeking the best bank rates you can find on the market.

If talk of a double-dip recession unfolds into reality, at least one thing's for sure: few consumers will be taken by surprise.

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