There's a timeless refrain among fans of losing teams in baseball: "Wait till next year." Right now, with the World Series having recently wrapped up, fans of 29 out of 30 Major League Baseball teams are singing that refrain. Depositors in savings accounts know how this feels.
Continue Reading Below
For a while, 2013 looked like the year when rates on savings accounts might finally start moving up again. Now, it looks like there's nothing to do but wait till next year.
The story has been the same since the Great Recession: A weak economy has fostered extraordinarily low interest rates. Until the economy shows signs of sustained strength, interest rates are unlikely to rise -- unless there is a dramatic inflationary event, which would result in rates rising for the wrong reason.
At the start of the year, it looked like that much-needed sustainable growth might finally be developing. Employment growth from November 2012 through February of this year averaged 236,500 jobs a month. Ten-year bond yields surged from 1.76% to 1.99% in January. Then though, failure to meet a budget deal caused a series of mandatory budget cuts known as sequestration to go into effect on March 1.
Employment growth plunged to 142,000 new jobs in March, and 10-year bond yields fell from 1.99% in January to 1.67% in April -- below where they had started the year. Even so, for a while it looked as though the economy might just shake off the effects of sequestration. Job growth recovered to an average of just over 182,000 from April through June, and 10-year bond yields rallied all the way into August, reaching a high of 2.75%.
Continue Reading Below
Right about then though, concern over the October 1 budget deadline and the mid-October debt ceiling deadline started to put a chill on the economy and financial markets. By the end of October, bond yields had slipped back by 21 basis points, to 2.54%.
What it means for savings accounts
In relating all of the above to savings accounts, bond yields should be looked at as a short-term indicator of interest rate trends. Because they are traded daily, they respond very quickly to changing economic moods. Rates on savings accounts and other deposits, on the other hand, are set by bankers who are going to be more cautious about raising rates. Until bond yields get out of the up-and-down pattern and into a more sustained rise, don't expect savings accounts to follow their lead.
For now, with the year nearly over and the economic hangover from the latest budget showdown still being felt, the best advice for depositors is to hang in there and wait till next year. Ominously though, next year also starts with a new set of government budget deadlines.
The original article can be found at Money-Rates.com:
Budget crises bookend a rough year for savers