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Some Interest Rates Rise in Q3 but Savings and Money Market Rates Remain Dormant

Some Interest Rates Rise in Q3 but Savings and Money Market Rates Remain Dormant

Most of the time interest rates move in cycles in relation to the economy and inflation. Interest rates rise when the economy is strong and the inflation rate is moving higher. Interest rates fall when the economy slows or contracts and the inflation rate falls. The current cycle for interest rates is at the bottom of a very long downward cycle. Rates haven't increased overall because economic growth is sluggish and inflation isn't a concern right now.

Some interest rates have increased recently but not due to a stronger outlook for growth or a higher expected rate of inflation. The reason for interest rates on U.S. Treasuries and mortgage rates increasing dramatically the past three months has been misplaced fear that the Federal Reserve would end their accommodative policy stance.

Savings Rates and Money Market Rates Remain Low

Although Treasury yields and mortgage rates moved higher, savings rates and money market rates continue to remain at low levels. CD rates have also remained low and will for the foreseeable future, regardless of how high bond yields go. Interest rates on all deposit products will remain low until the Federal Reserve increases interest rates.

The Federal Reserve has kept their benchmark interest rate, the federal funds rate, in a targeted range of zero percent to one quarter percent since December 2008. This has kept deposit rates low for almost 5 years now. The Fed has also been buying $85 billion a month in long term U.S. Treasuries and mortgage-backed securities to suppress long term interest rates.

Bond Interest Rates and Mortgage Rates Skyrocket

Interest rates on long term bond yields and mortgage rates skyrocketed the past month. Rates increased so much, several officials at the Fed had to say the Fed wasn't planning on changing their policy stance any time soon. The FOMC's most recent statement on economy policy released on July 31, didn't contain any surprises, they said they will continue to keep rates low and buy $85 billion a month in MBS and bonds.

Long term bond yields continue to move higher. Since the Fed statement was released two days ago, 10 year bond yields have increased from 2.60 percent to 2.72 percent this morning. If rates on bonds and mortgage loans continue to rise at this pace the economic recovery could be in jeopardy, which would send rates tumbling again.

Current Interest Rates on Deposit Accounts

[caption id="attachment_155033" align="alignright" width="300"]FDIC Average Deposit Rates FDIC Average Deposit Rates[/caption]

Current national average savings account rates and money market account rates are ridiculously low. You can see from the chart to the right now low rates are.

The FDIC's national average savings rate this week is at 0.06 percent. The FDIC's national average money market rate isn't doing much better at 0.09 percent. The best savings rates and money market rates are much higher than the averages but you won't get rich with the best rates around 1.00 percent.

Best Deposit Rates This Week

Savings Rates

  • The Palladian PrivateBank 1.00%

  • Barclays Bank 0.90%

  • FNBO Direct 0.85%

  • Ally Bank 0.85%

  • Heartland Bank Direct 0.70%

Money Market Rates

  • EverBank 0.86%

  • Sallie Mae 0.90%

  • Mutual of Omaha Bank 0.85%

  • GE Capital Retail Bank 0.85%

  • Ally Bank 0.84%

To ensure you find the best rates available, search our interest rate database at RatesORama.com.

Author: Brian McKay
August 2nd, 2013