The last week of August brought yet another confirmation that the U.S. economy is growing slowly, and a widely followed speech from Ben Bernanke that offered no new answers to the economic doldrums. Neither development was good news for savers.
Given how low savings account rates are, the question is no longer whether they will continue to fall, but how long they will remain at today's artificially low level. Based on the above two late-summer developments, those low savings account rates seem likely to stick around for quite a while.
Continue Reading Below
GDP stuck in low gear
On August 29, the Bureau of Economic Analysis released its second estimate of U.S. Gross Domestic Product for the second quarter of 2012. After inflation, the economy is now thought to have grown at a 1.7 percent rate in the second quarter. That's a slight improvement from the 1.5 percent that had originally been estimated, but still represents a deceleration from the 2.0 percent growth rate of the first quarter, and especially from the 4.1 percent growth rate at the end of last year.
The slow economy is the central cause of the extreme low rate environment for savings accounts, money market accounts and other deposits. For one thing, low demand for capital gives banks little incentive to offer higher rates to attract deposits. For another thing, the Federal Reserve has acted aggressively to drive interest rates down, as Fed Chairman Ben Bernanke reiterated in his August 31 speech.
The Fed remains committed to low interest rates
Speaking at a Federal Reserve symposium in Jackson Hole, Wyoming, Bernanke recapped the actions the Fed has taken to drive both short- and long-term interest rates down. Normally, the Fed would address a slowing economy by lowering short-term interest rates, which was the first thing the Fed did in response to the Great Recession. However, given the severity of that recession, the Fed then took the more unusual step of buying bonds to pull long-term rates down.
In his speech, Bernanke confirmed that the Fed remains committed to these tactics, while describing no new initiatives that might stimulate the economy. Both of those aspects of the speech signal more lean times ahead for the economy.
Naturally, a policy of lowering rates in an attempt to goose economic activity has contributed to today's super-low savings account rates. On top of that, the fact that the Fed seems to be running out of options with no results to show for their efforts suggests that a sluggish economy -- and the low rates that go with it -- might be inevitable over the next several calendar quarters.
With no macro-economic solutions on the horizon, consumers are left to take individual actions if they want to boost their savings account rates. Actively shopping for rates, and considering higher-yielding options such as online savings accounts, are examples of the ways consumers can do a little better, even as the low-rate environment lingers on.
The original article can be found at SavingsAccounts.com:Summer ends on a chilly note for savers