High Interest Savings Account for a Bad Economy

Find out how a high-interest savings account can help you save.

Historically a high-interest savings account has been a great way to earn a decent rate of return for your investment, but in a bad economy they are not as lucrative as they have been in the past.

The possible interest rate you can earn on a high interest savings account depends on the economic condition of the nation.

The Federal Government is constantly tweaking the interest rates to make sure the economy stays on track. When it looks like the economy is slowing down, the Feds will lower the short-term interest rate they charge banks for borrowing against each other and thus it will become cheaper for consumers to borrow money as well. The reason the Fed is doing this is because cheaper money means more consumer and business spending. In other words, when the economy is doing great, the rates typically go up. When the economy is in doldrums, like it is now, the rates go down.

In the case of our current economy, the interest rates are at their lowest point in decades. Consumers looking to borrow money to buy a car, a home or even to borrow money to consolidate their debt, are able to take advantage of low interest rates. On the flip side of the coin, those trying to save their money also get low rates, even on the so-called high-interest savings accounts.

Right now, the high-interest savings account rates are hovering between 2%-3%, a far cry from the 5%-6% of only a couple of years ago. Once the recession ends, the interest rates will once again move up.

Another factor that affects rates is inflation: the higher the inflation, the higher the rates. Hopefully we will not see high inflation any time soon.

About the Author

These articles are written by the in-house GOBankingRates team.