The Bright Side for Deposit Accounts

With interest rates scraping along just above zero, it's easy to grow frustrated with savings accounts and other bank deposit products. However, these are very troubled financial times, and as uninspiring as savings account rates have become, the grass may not be greener anywhere else.

According to the FDIC, by late May the average U.S. savings account rate had fallen to 0.10%. One-month CD rates were even lower, at 0.08%, while money market rates offered just a little extra, at an average of 0.13%. None of these represent a very substantial rate of return, but under the adverse financial circumstances of today, here are four reasons deposit account customers can count their blessings.

1. FDIC insurance

Amid concerns over Greece possibly leaving the euro, Greek citizens have started withdrawing their savings from Greek banks. This in turn has created concern that a run on Greek banks could exacerbate that country's financial woes. Also, broader worries about the euro raise the specter of similar bank runs spreading to some of the weaker economies in Europe.

All of this is a reminder that while people in the U.S. tend to take FDIC insurance for granted, it is a double-blessing for bank customers in this country. It not only guarantees individuals security of their deposits, but in cases such as 2008, where there were isolated incidents of people clamoring to get their deposits out of particular banks, the reassurance of FDIC insurance helped stop those incidents from spreading into a general panic.

2. Something is better than nothing

The Facebook IPO was a spectacular flop, and the stock market has been beaten up pretty badly during the past month. Over one particularly ugly stretch, the S&P 500 declined on 11 out of 13 trading days. Suddenly, breaking even and perhaps earning a few basis points of interest looks pretty good to beleaguered stock investors. To think of it from a bank depositor's point of view, it is natural to look for alternatives when bank rates are as low as they are today, but it is difficult to find alternatives that don't represent a substantial step-up in risk.

3. The U.S. currency

The Greek crisis has weakened the euro. Suddenly though, Greek citizens are clinging to the euro like shipwreck survivors clinging to floating debris, because they know any stand-alone Greek currency would be substantially weaker than the euro. A weak currency brings with it the threat of high inflation. This is another blessing for U.S. bank depositors -- those dollar-denominated deposits look especially solid against the backdrop of the European currency crisis.

4. Inflation's holiday

Finally, U.S. depositors caught a break when the most recent inflation report from the Bureau of Labor Statistics showed no inflation for the month of April. Inflation has faded primarily because oil and gas prices have reversed their rising trend from earlier in the year. If this continues, depositors will at least get to keep the value from the little interest they earn.

The above are all reasons to appreciate U.S. savings accounts, but they are not reasons to settle for mediocre savings account interest rates. If you shop for higher savings account rates, you can not only count your blessings, but multiply them as well.

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