Bank Savings Rates Look Good (Really)

The rates on bank savings account look good right now. No, this is not a late April Fool’s Day joke, we are serious. There are two reasons why savings account rates look good. First, you have to compare them to other similar savings instruments. The 90-day Treasury Bill is yielding 0.15% today, the national average on money funds is below 1%, and the Treasury Department announced last week that the rate of return on the I-Bond for the next six months will be 0.00%. In comparision, MoneyRates.com is listing the following savings account rate leaders among their national APY leaders:

Heartland Bank Direct 2.30%

AIG Bank 1.81%

Discover Bank 1.75%

Even if you compare the highest yielding bank savings accounts to government bond funds, they stack up nicely. Most short-term government bond funds are yielding below 2%, and don’t forget a mutual fund can fluctuate in value unlike a bank savings account.

The second reason we are not crazy for saying the savings rates look good is that economists are now forecasting higher interest rates due to the expectation of inflation in the economy. If you expect interest rate to increase, especially if a quick increase in rates is possible, it makes sense to stay in liquid accounts and not fixed-term investments. You could purchase a 5-year CD with a higher rate than a savings account, but you are also stuck with that rate if interest rates jump up higher. The difference between longer-term CD rates or longer-term Treasury yields and the best savings account rates is only about 1% to 1.5% on average. Economists are forecasting that interest rates could increase more than that over the next few years. This means a savings account investor could come out ahead.

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