Europe Debt Deal Could Boost U.S. Interest Rates

NEW YORK (MainStreet) — An agreement 3,000 miles away could set the stage for U.S. bank interest rates, which have continued to lag as the economy teeters on the brink of recession.

Thursday’s announced deal between eurozone leaders and European bankers leaves banks writing off 50% of their Greek loans – essentially writing off their Greece investments as bad debt. This should help the global economy take one significant step away from recession, and could mean a healthier bank deposit rate for U.S. investors.

For Europe, the Greek debt deal is all about protecting the euro. In the U.S., the breakthrough is significant because if the eurozone starts to heal, that would help the U.S. economy since a more stable economic environment overseas would send a signal to businesses, consumers and investors that better times are ahead.

That last group – investors – have already gotten the message. The Dow Jones Industrial Average was up 300 points by 1 p.m. on Thursday, while the benchmark 10-year Treasury note is up 0.08%, or 3.68%.

Typically, interest rates begin to rise on good economic news, as banks and lenders have to hike interest rates to lure more investors – many of whom have already stampeded off to the stock market for hopes of greater returns on their investment dime, and higher rates couldn’t come at a better time. If they do continue to rise (and that process usually happens at a glacial pace), that would be a welcome development for bank deposit savers.

According to the BankingMyWay Weekly Interest Rate tracker, bank savings pay a paltry 0.136% interest, while checking account rates are worse off, at 0.081%.

Certificate of deposit rates aren’t much better. The benchmark one-year CD is only returning 0.349%, according to the BMW tracker.

Rates that low need a shot of energy to get back on the mend, and there could be more good news coming out of today’s economic data. Aside from the eurozone data, the Commerce Department reports that the third-quarter gross domestic product (GDP) clocked in at 2.5% -- the best performance all year for the U.S. economic engine. (The economy only grew by 1.3% the previous quarter.)

And the U.S. Labor Department reports that jobless claims fell last week by 2,000 to 402,000 – a minor decline, but a decline nonetheless.

Nobody’s saying that the U.S. economy is robust and rock solid right now. But in this economic maelstrom, a day where three pieces of good news come in (the eurozone deal, the GDP improvement, and the decrease in jobless claims) is a welcome rarity for bank investors, who can use all the good news they can get.

While signs of improvement are great, one frustration with the way the economy is going is that the income gap keeps getting wider. Check out MainStreet's look at the States With the Biggest Income Inequality to see where your home state stands!