The last week of August brought yet another confirmation that the U.S. economy is growing slowly, and a widely followed speech from Ben Bernanke that offered no new answers to the economic doldrums. Neither development was good news for savers.
Given how low savings account rates are, the question is no longer whether they will continue to fall, but how long they will remain at today's artificially low level. Based on the above two late-summer developments, those low savings account rates seem likely to stick around for quite a while.
GDP stuck in low gear
On August 29, the Bureau of Economic Analysis released its second estimate of U.S. Gross Domestic Product for the second quarter of 2012. After inflation, the economy is now thought to have grown at a 1.7 percent rate in the second quarter. That's a slight improvement from the 1.5 percent that had originally been estimated, but still represents a deceleration from the 2.0 percent growth rate of the first quarter, and especially from the 4.1 percent growth rate at the end of last year.
The slow economy is the central cause of the extreme low rate environment for savings accounts, money market accounts and other deposits. For one thing, low demand for capital gives banks little incentive to offer higher rates to attract deposits. For another thing, the Federal Reserve has acted aggressively to drive interest rates down, as Fed Chairman Ben Bernanke reiterated in his August 31 speech.