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. 

Are Bonds Good Investments Right Now?

Now is an awful time to buy long-term bonds. The interest rates are currently less than 1%, which means that they are much more likely to be higher five years from now than they are today. I certainly wouldn't bet that interest rates will be lower in 2015 than in 2011. Of course, if you're near retirement, or if you're looking to allocate part of your assets to the 'safe compartment' of your overall savings, then you might want to buy bonds even if the rates aren't all that great right now.

One of the better deals out there available to investors is I-bonds issued by the federal government. You can purchase them at face value, and they are guaranteed to never fall in value, and you earn an interest rate determined by a fixed rate and the inflation rate as measured by the Consumer Price Index. Right now, that rate gives you interest between 3-4%. That's pretty good, considering the interest rates on other safe alternatives yield a paltry 1-2%. Most likely, as the United States continues to inflate its way out of the debt, the savings accounts will yield more, but unfortunately, that will be offset by the fact that goods will cost more to buy. To read a good article on the pricing of bonds, be sure to check out this article over at Michael James Money: http://michaeljamesmoney.blogspot.com/2011/07/bond-misconceptions.html .