New Market Rates Insight Analysis Shows Deposit Interest Rates Will Remain Low as Long as Unemployment Remains High

A new market analysis from Market Rates Insight (MRI, www.marketratesinsight.com), a leading research firm that tracks rates for deposits, loans, and fees for financial institutions, found a very strong and significant relationship between unemployment rates and deposit interest rates. The latest report uses data for the past five years and reveals that it is very likely that deposit interest rates will not go up until the unemployment rate goes down.

The analysis found that 79.1 percent of the variance in the average interest rate for deposits can be explained by the variance in the unemployment rate. This means that when the unemployment rate is going up, the national average APY for deposits goes down, and when the unemployment rate drops, deposit rates increase.

In January of 2005, the unemployment rate was 5.20 percent and the national average interest for deposits was 2.63 percent. In March of 2007, the unemployment rate declined to 4.20 percent, and the national average interest rate for deposits increased to 4.25 percent. In September of 2009, the unemployment rate increased to 9.80 percent, and the national average interest rate for deposits declined to 1.55 percent.

“Although there may be other factors that affect deposit interest rates, such as inflation, these factors did not have a major impact on deposit interest rates over the last five years,” said Dr. Dan Geller, Executive Vice President at Market Rates Insight. “Therefore, assuming that there will not be any major change in the inflation index, it is very likely that deposit interest rates will not go up until the unemployment rate will go down.”

The complete analysis can be viewed on the Market Rates Insight website at this location: http://marketratesinsight.com/docs/sa10.27.09.pdf.

About Market Rates Insight

For more than two decades, Market Rates Insight (MRI) has been helping subscribers price with precision by providing banks, thrifts, credit unions, and other financial institutions with accurate market intelligence on deposits, loans, and fees. MRI uses deposit surveys, mortgage and consumer loan surveys, fee and feature studies, scanned ads, new product alerts, and market share and money fund reports to give subscribers the intelligence they need to profitably react to emerging trends. MRI’s products include customized, web-enabled market research tools that report on rates, as well as online searchable databases, gauges, alerts, and dashboards that aggregate key client data to provide real-time views on how they stack up against market competitors.

Market Rates Insight is located in San Anselmo, California. For more information, see www.marketratesinsight.com.