Bank certificate of deposit investors finally got a cool drink of water, after months of roaming a bone-dry CD rate landscape.
There’s no question the bank rate hikes, which happened almost across the board, are a boost for bank deposit investors. A hike in rates tells investors every week isn’t an exercise in futility. There’s no hard, concrete news indicating the economy has turned a corner, or that higher rates will be the norm, and not the exception, but it’s still good news nonetheless.
What is the driving force behind higher CD rates, even for a week? It could be that banks overplayed their cards, discouraging depositors so badly that bank investors threw up their hands and walked away. To lure more customers, banks need to entice them with higher interest rates. Banks should do just that — or risk losing investors to the bond market or other safer investments than the stock market.
There is some good news for banks: Americans seem to want to save more. A recent study from the Mortgage Banker’s Association says that Americans are committed to increasing their personal savings rate (even if it means consumers will spend less, which hurts the economy).
The study’s author, Joe Peek, a business professor at the University of Kentucky, says that the tendency to save more is a byproduct of the “new normal” that economists have warned about for two years now.
“While Americans, and the American economy, are noted for their resilience, the current financial crisis and recession exceeded the devastation created by other post-World War II recessions,” says Peek. “Saving rates have risen substantially, and many Americans will continue to cut their spending sharply out of necessity,” Peek continued. “Since consumer expenditures account for about two-thirds of GDP, we are facing the ‘paradox of thrift’ as households try to rebuild their net worth, with the reduced spending likely to delay and weaken the recovery from the ’Great Recession.’”