How Greek politics affect US savings accounts

November 15, 2011

| MoneyRates.com Senior Financial Analyst, CFA

Like many Americans, you may be confused, amused, or simply bemused by the news from Greece lately. While Greek politics may seem far removed from your finances, there is a connection to the American economy, and even to the interest rates on your savings accounts, money market accounts and CDs.

Recapping events

For several months now, Greece has been in danger of defaulting on its government debt. European leaders negotiated a complex bailout package with Greek Prime Minister George Papandreou, only to have Papandreou surprise them by announcing that the measure would have to be approved by a national referendum. Papandreou subsequently backed down, but having lost the confidence of his parliament, he was forced to resign.

What all this amounts to is a huge dose of political uncertainty on top of an already very difficult financial situation.

What does it mean for savings accounts?

These events will certainly have a huge impact on day-to-day life in Greece, and they clearly also matter to the economies of euro-zone nations, but how do they relate to bank accounts here in the United States? In a nutshell, economic difficulties in Greece are yet another force that is working to keep current interest rates low here in the U.S. You can make this connection in two ways:

  1. The U.S. economy needs all the help it can get from external sources. International trade is important under any circumstances, but it is especially critical when domestic demand is weak. If Europe's economy slows, it will be a drag on U.S. growth. This affects savings accounts and other deposits because interest rates are unlikely to rise until the U.S. economy strengthens.
  2. A flight to quality could also drag down U.S. interest rates. If international investors are concerned about European defaults, they are likely to flock to U.S. Treasury securities. Increased demand for U.S. bonds could further drive down interest rates in this country.

Ordinary savings accounts may seem far removed from the intrigues of international politics and finance, but its a small world these days. Everything is connected--though sometimes it seems it would be better if it weren't.

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