Stuck in Traffic: Savings Accounts Test Depositor Patience

Published July 19, 2012

| MoneyRates.com

AThese days waiting for higher interest rates on savings accounts is a little like being at the back of a long traffic jam: You can't see what's going on up front, and while you get the sense now and then that things may be ready to start moving, that movement never seems to reach you.

Like a person stuck in traffic, interest rates on savings accounts, money market accounts and other deposits are waiting at the back of a long line. A number of things have to happen before those rates can rise: Job growth must improve, consumer finances have to strengthen, spending needs to pick up and banks need to see more profits from lending and investments.

Over the past couple years, there have been periods of apparent progress in one or more of these areas, but never enough for that progress to make its way back to deposit rates. Recently, there has been yet another sign of possible movement, but it too could prove to be yet another false positive.

False positives

Here are a couple examples of the false positives the economy has endured in recent years:

GDP growth. Gross domestic product, a broad measure of the economy, rallied after the Great Recession to reach real annualized growth of 3.8% or greater for three consecutive quarters in late 2009 and early 2010. Growth then began to slow, almost to a standstill. This growth rate dropped to 0.4% in the first quarter of 2011. GDP growth rallied to the 3.0% mark by the end of last year, only to slip back once again in the first quarter of 2012.
Job growth. Early last year, U.S. employment growth exceeded 200,000 for three consecutive months, before tailing off drastically. More recently, the job market repeated this feat with three consecutive months of more than 200,000 net new jobs in December 2011 through February 2012. Once again though, job creation then faded, and figures for recent months have been anemic.

The above seemed like signs that the economy was improving, but these signals were never sustained long enough to prompt a rise in deposit rates.

The latest sign of movement

The latest sign of possible progress by the economy is in housing prices. The S&P/Case-Shiller Home Price Index has increased in each of the last three months. Rising home prices have the potential to boost the economy by improving household balance sheets, and by creating jobs in construction and related industries.

Unfortunately, it is too early to tell whether this housing trend will take root. The housing market has been down this road before: Prices rose steadily from May 2009 to May 2010, only to start another long downward slide, culminating in a new low this past January.

For now, then, savings accounts remain at the back of the traffic jam. There may be some movement ahead, but it's likely a long way off.

The original article can be found at Money-Rates.com:
Stuck in traffic: Savings accounts test depositor patience

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