Last month, the Bureau of Economic Analysis revised its estimate of third-quarter GDP growth to a real annual rate of 5.0 percent. This represented a substantial upgrade from its original estimate of 3.9 percent and provided an unexpected Christmas present that could benefit a wide cross-section of Americans.
Besides helping grow employment for job-seekers and expand markets for business owners, the faster pace of GDP growth could benefit a particularly long-suffering group: bank customers who have for years been forced to settle for near-zero interest rates on savings accounts, money market accounts and certificates of deposit.
Here are five ways that the recent GDP announcement could benefit savers in the year ahead.
1. Increased spending strengthens demand for credit
Interest rates are affected by supply and demand. The more economic activity there is, the more spending is going on, and that increases demand for credit. A 5 percent real GDP rate represents a heightened level of economic activity, and that bodes well for higher interest rates this year.
2. Accelerating growth defies the deflation mentality
Inflation was very low during 2014, and there were even some hints of deflation in the second half of the year. The danger of inflation is that it puts a damper on economic activity because consumers delay their purchases, waiting to see if prices fall further. The fact that GDP accelerated even as inflation was slowing suggests that this mind-set has not yet taken hold.
3. U.S. growth counters global malaise
The U.S. economy has become one of the bright spots globally, with much of the rest of the world experiencing a slowdown or even a recession in some areas. Between slow foreign growth and a rising dollar, the U.S. cannot expect much help from foreign demand at the moment. It is essential for the domestic economy to be strong.
4. Investor confidence puts competitive pressure on banks
The aftermath of the Great Recession caused a massive flight to safety, with people flocking to secure their money in FDIC-insured savings accounts. That allowed banks to get the benefit of having those deposits on hand while offering virtually no interest on those accounts. As the economy strengthens, investors will get more confident and start seeking more rewarding alternatives. That puts the onus on banks to offer higher interest rates to continue to attract deposits.
5. Robust growth may shift the Fed's focus
For several years now, Federal Reserve policy has been dominated by a focus on stimulating the economy, which means low interest rates. Stronger growth can allow the Fed to reset interest rates to more normal levels, if not due to inflation concerns then simply to give them a monetary card to play when the economy next slows.
To be sure, there have been false alarms before during the halting recovery that has followed the Great Recession. However, the string of encouraging signals is starting to show some staying power, so perhaps this time it is the real thing.
This article originally appeared on money-rates.com.
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