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8.03.2011

When Will Savings Account Rates Go Back Up?

Some people claim that mattresses pay out better interest rates these days than savings accounts. While that is a bit facetious, many long-term savers have become dismayed by the extremely paltry savings rates that banks have been offering the past 3-4 years. Most banks currently pay interest rates less than 1%, and some pay much less than that. Obviously, savings accounts aren't a way for anyone to get rich these days.

About a decade ago, it wouldn't be that terribly difficult to find a bank that paid out 5-6% in interest. This makes a world of a difference for savers, especially those nearing retirement. If you had $100,000 in the bank, you would be collecting $5000-$6000 per year on your savings accounts, and nowadays, you'd be rather fortunate to be making a $1000 per year. 

If you made your retirement calculations a decade ago, you probably didn't imagine a world of less than 1% in interest rates facing your account. So naturally, you're probably wondering--when will the higher rates return? There is not necessarily a clear answer. If the United States economy takes off again, then the federal reserve will start to raise rates. But as long as unemployment remains high, I doubt the federal reserve will raise rates. Ask yourself when you think American unemployment will once again return to the 6-7% range, and then you can get an idea of when you can expect to earn 3% or so on your savings account. The only way the federal reserve will raise rates is if inflation takes off or unemployment declines sharply. 

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