Savers are being challenged by historically low interest rates today, as the global economy struggles with reducing the massive debt amassed during the credit bubble of the last two decades. As a result, the rates on savings accounts are currently barely above zero at most financial institutions.
When factoring in the effects of inflation, there are negative real rates of return for many savers in the current banking environment. Without the prospect of higher interest rates and without the subsequent magic of compound interest, many savers are essentially paying banks to hold their money for safekeeping at present interest rates.
The prospects for 2013 are not concrete enough to be encouraging for those seeking higher savings account rates, although there are some silver linings, hidden gems, and possible surprises that could help savers generate higher rates of return in the year ahead.
In the United States, the Federal Reserve issued a policy directive that explicitly outlines its intention to keep interest rates at or near zero until mid-2015. The Bank of England in the United Kingdom has indicated that it will pursue a nearly identical monetary policy strategy through mid-2015.
The fact that savings account rates are currently averaging 0.08 percent in the United States, for example, is the result of the central bank forecasting only tepid inflation expectations for the foreseeable future.
The Fate of Interest Rates Today
Although the inflation rate is currently higher than savings account rates, the outlook for broad-based increases in prices remains mild, and interest rates today will likely stay low until inflation begins to rise in a substantial and sustainable manner. This translates into a less crucial environment for savers to stay ahead of the cost of living, placing the need for savings account rates in its proper context.
By necessity, economies that are experiencing high rates of inflation must have high interest rates in order to encourage people to delay spending and consumption in favor of saving.
The exact opposite is currently occurring in most of the industrialized economies, with interest rates today so close to zero that it encourages flight of capital to risk assets, and taking on debt rather than saving. If savings account rates — and inflation — were to suddenly begin rising substantially higher, that sort of dynamic economic climate would create more of a requirement to pursue risk investments in an effort to chase yields to keep up with rising costs of living.
Looked at another way, historically low savings account rates portend an economic climate that embraces the status quo, which is the kind of slow and steady environment that many savers prefer.
Where to Find the Best Savings Account Rates
There are financial institutions offering savings account rates in excess of 1 percent annually, although they require some research to locate. Some helpful online tools enable savers to identify the highest rates for savings accounts available for their specific needs. Such criteria as geographic location, minimum amount to open an account, and availability of funds can be filtered to deliver the best possible results.
Higher savings account interest rates are also available for certain groups in the United States. For instance, a government-based program offers a 10 percent savings rate for active military members, according to The New York Times.
Further, while savings account rates have yet to make a significant leap going into 2013, a strengthening U.S. economy is showing signs of continued growth. According to a November report from the Commerce Department, consumer spending rose 0.4 percent, and incomes rose 0.6 percent—“the biggest gain in 11 months,” according to a separate The New York Times report. Some experts predict that savings account rates will soon rise as a result.
Will Savings Account Rates Go Up in 2013?
There are several factors that could potentially contribute to a change in savings account rates in 2013. Inflation is the most salient factor guiding interest rates today, and a sudden rise would cause account rates to increase. Such unpredictable circumstances as soaring gas prices could increase pressure on interest rates as well. Banking crises, natural disasters, and economic recession could even cause rates to go to absolute zero, creating a more challenging environment for savers.
This guest post was provided by Chad Fisher, a finance writer who also spends time working with real estate companies providing them online consulting. One of the companies is the Richland Apartments, which has apartment homes for rent in San Antonio, Texas.