Skip to main content

When my mother heard I was having lunch with

Federal Reserve

Chairman Ben Bernanke (along with about 1,000 members of the Economic Club of Chicago) Thursday, she suggested I ask him to raise interest rates again. Mom's a saver -- and welcomes earning more interest.

And when the moment came and I was introduced to the Fed chairman, I passed along her suggestion. Bernanke responded with a determined set of his lips. The Fed chairman has obviously learned his lesson regarding talking about interest rates with reporters at informal gatherings!

Bernanke gave his audience of business executives a well-balanced and understandable discourse on the history of the relationship between energy and inflation. But he didn't give a hint of where he really thinks interest rates are going, though the market is expecting more increases.

As much as my mom would like her say, we can't control the Fed's rate moves. But we can hunt to take advantage of the highest rates on savings and the lowest on borrowings. And in most cases, that means going online. Banks are now offering strong incentives to save, while a new online service is helping to improve borrowing costs.

The Savings Rate Hunt

Banks have been reluctant to raise interest rates on savings deposits. There's an awful lot of money sitting around, and relatively little demand from borrowers as housing sales slow. Still, a few financial institutions are out to gather deposits by offering eye-catching rates -- mostly for those willing to open an account online and read the fine print.

For example, Countrywide Bank, a unit of

Countrywide Financial


, has created a new online savings account, SavingsLink. It offers a rate of 5.0% APY -- a yield that is more than double the jumbo money-market account national average -- but that's only


you have at least $50,000 to deposit. With a deposit of $1,000 or more, you get an APY of 4.25%. That's still nothing to sneer at, considering the national average money-market deposit rate of 3.1%, according to a survey.


Scroll to Continue

TheStreet Recommends

(C) - Get Citigroup Inc. Report

CitiBank offers an APY of 4.75% for its e-savings account, which must be linked to a qualifying checking account opened at the bank's Web site. But there is no minimum balance requirement.

Finally, the banks are recognizing that their costs for online banking are lower -- and they're starting to pass along the benefits to online depositors. You can do your own comparisons at

The Borrowing Rate Hunt

There's also big news from a student loan company that has decided to compete to offer lower rates on new federal student loans. In a market that has long been dominated by a form of price-fixing, you can now get a better deal than the published loan rates. (Note: This is not about

consolidations; it's about new loans that students will be taking out for the fall semester.)

At, you can apply for federal student loans at better rates than the standard. Instead of paying the widely publicized Federal interest rate of 6.8% for Stafford loans, you'll pay only 5.8%. For PLUS loan borrowers (typically parents of students who don't qualify for federal student loans), the rate through this Web site will be 6.75%, instead of the 8.5% that will be charged this fall by most participating lenders.

What's going on here? In a word: competition. This company is willing to take a thinner profit margin on these loans than the rest of the student-lending market. The company, financed by Merrill Lynch Private Equity Partners, Battery Ventures and Nomura Capital & Credit, is set to revolutionize the student-lending market by offering lower rates on the same product.

Students go directly to the MyRichUncle Web site to get this loan. By law, the financial aid offices at universities must accept these loans to pay for college expenses. Once again, the Internet is starting to save money for savvy users.

While Bernanke isn't dropping any clues, the markets are betting that the Fed will raise rates again at its meeting on June 29 to keep its inflation-fighting credentials polished. The short-term rate, which has been raised by 400 basis points over the past two years, currently stands at 5%.

If Ben and friends keep raising rates, don't blame it on my Mom's advice. But you can use your best efforts to take advantage of all the interest rate deals for savers as well as borrowers. That's The Savage Truth.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage?s personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,

The Savage Number: How Much Money Do You Need?

in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald?s and Pennzoil.