June 12, 2009 Update

Individual bank rates may fall a bit from here but for the most part rates seem to have bottomed, as shown by the chart below. Even savings accounts, the most liquid and sensitive to the Fed Funds Rate (currently at 0%) has flatlined and is no longer on its steep downward slope. Indeed, we've even seen a few banks increase their rates.

Everbank raised the 3-month bonus rate on its money market account from 2.51% APY to 3.01% APY this week. That brings its one year APY to 2%. In addition, two new banks joined the BestCashCow savings and money market rate table with competitive rates. Wiltshire State Bank is offering a 2.80% APY savings account with the rate guaranteed until January 31, 2009. Provident New Jersey Direct is offering 3-month introductory bonus rate of 3.01% APY and then 2.25% APY on deposits over $10,000. (View all savings and money market rates).

The Fed may be trying to keep rates low but the markets are not behaving. This week, the yield on 10-year Treasury notes went to 4% for the first time since October 2008. Traders have also begun to speculate that the Fed will have to raise the Fed Funds rate sometime in the fall or early next year.

The FDIC is doing little to help increase rates and aid savers. They recently caved into pressure from the American Banker's Association to put pressure on Ally Bank to lower its competitive rates. This pressure included tying bond guarantees to the deposit rates Ally offers savers. Ally Bank lowered their rates last week and we can expect more decreases in the upcoming weeks from them.

In addition, the Federal Reserve recently passed a ruling that prevents certain banks from offering rates above a national average. These rate caps are low (See the Fed rate caps). For instance, the current rate cap on a savings account is .96%. That compares to the best BestCashCow rate of 3.05% APY from Smartypig. On $100,000 that's a difference of over $2,000 per year!

Taken together, the goverment is doing everything it can to persuade you to take your money out of the bank and spend it. It may just be me, but that seems an awful lot like the policies in 2001-2002 that helped fuel the housing/credit bubble. Now, if only the banks weren't raising their credit card rates at the same time they were lowering their deposit rates. Get a sense for how the Fed is trying to recapitalize the banks?

The spread between the average BestCashCow savings rate and 36 month CD rates remains steady as investors, banks, and consumers wait to get the next read on where the economy is going.

• Compare the best CD rates.
• Compare the best savings rates.