Savers hit again as short-term interest rates resume slide

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In the financial-market panic of late last year, interest rates on short-term U.S. Treasury bills dived close to zero as investors competed madly to buy them, desperate for a safe hiding place.

Lately, T-bill yields have been taking another dive -- though this time, investor panic doesn’t seem to be the driving force.

More likely, short-term interest rates are falling again as central banks, including the Federal Reserve, continue to flood the global financial system with money, leaving commercial banks and other lenders flush with funds.

This is lousy news for savers, who keep watching bank deposit rates slide. Without any real competition from T-bill yields and other short-term accounts (such as money market mutual funds), banks have less reason to pay up for deposits.

The annualized yield on three-month T-bills slipped to 0.10% on Thursday, down from 0.14% on Wednesday and the lowest since Jan. 12. The yield has dropped from a year-to-date peak of 0.33% on Feb. 10.

Benchmark global short-term rates, such as Libor (London inter-bank offered rates), also have been sliding in recent weeks.

If this is a sign of further thawing of the credit markets, it’s a good thing for the global economy, of course.

But some investors may be favoring short-term accounts for another reason: Fear of locking up their money even through the end of this year, because of concern that inflation could begin to rise -- a potential side-effect of all the liquidity central banks are pumping into the world financial system.

As Bloomberg News notes in this story, China ramped-up buying of T-bills in February while selling longer-term Treasuries.

As for savers, they’re looking at ever-slimmer pickings. Anyone who has a savings certificate maturing soon should be prepared for sticker shock.

The average yield on six-month bank savings certificates nationwide fell to 1.27% this week, a new low and down from 1.86% on Jan. 1, according to rate-tracker Informa Research Services.

The average yield on money market mutual funds now is 0.2%, an all-time low and down from 0.76% at the start of the year, according to iMoneyNet Inc.

You can think of it this way, sadly: If you’re a taxpayer and a saver, you’re in effect paying twice to rescue the banking system.

-- Tom Petruno