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2006: A look back - A look ahead  
  The landscape was schizophrenic in 2006 but a slow economy could fuel a rates war in 2007.
 Checking & savings
 Personal finance calendar  Personal finance calendar 

Savings levels and rates should rise in 2007

Rick agrees, saying some credit unions "are taking risk-based lending to a higher level. A lot of credit unions are trying to help low-income members not become entwined in ongoing relationships with traditional payday lenders."

Congress and the regulators
A shift in control of Congress could also spell changes to the checking and savings arena. "The Democrats are much more open to the agenda of consumer groups," says Elmendorf. "How that would work out is hard to say."

Regulators will also be taking a closer look at a couple of industry practices, courtesy overdraft protection and check-hold time periods.

In response to questions from consumers and consumer advocates, the FDIC will be studying courtesy overdraft programs in 2007, looking at how they work and the fees that are charged. "The FDIC continues to be concerned about that, in general," says Elmendorf.

Consumer groups want to see caps on fees or fees that are based on the actual amount of the overdraft, says Hillebrand.

Other consumer groups want to see change in the length of time banks are allowed to hold checks before crediting customer accounts. In 2005, Check 21 regulations allowed institutions to debit accounts almost instantly, but often money is much slower on the deposit side.

The Federal Reserve is scheduled to release its study into the matter in 2007.

Where will rates go?
No one really knows what savings rates are going to do in the next year. But everyone has an opinion.

"Going into the beginning of next year, we will be in the same interest rate environment we're in now," says Leggett.  But he does expect that, during the next year, longer term CDs will start paying better rates than shorter-term CDs.

This year, investors who wanted good rates on CDs were looking at short-term investments. At the start of the year, 14- to 16- month CDs were showing the best rates, but toward the end of the year, the investments in the three- to four-month rates gave a higher return, says Fuschino.

As for 2007, "To some extent, we're in uncharted territory," he says. "It's anticipated that the Fed has probably stopped raising rates, and that the next move will be a decrease. But we don't know if that will be in two months or 12 months."

In 2006 many consumers stored away money in accounts at Internet-based banks and other institutions which offered rates comparable to CDs. But in 2007, speculation is that rates are going down, says Oleson. If the savings rates follow suit, he wonders if consumers will switch banks or savings vehicles.

Many believe rates will remain largely unchanged for the next year. "I don't think interest rates will be measurably different a year from now," says Hart. As for the Fed's next move, he says, "the information doesn't support the next move being down."

Dana Dratch is a freelance writer based in Atlanta.

-- Posted: Nov. 1, 2006
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