The Fed Has Increased Key Interest Rates Five Times This Year
Since the U.S. Federal Reserve is lowering interest rates, the cost of borrowing money will go up, which means people will be less likely to buy things. As a result, fewer products will be available so prices will drop.
Higher rates mean that people can borrow more from the bank. Because the bank earns more on the loans, it can raise its return to borrowers.
It’s like banks’ “virtuous circle” with their clients. But until recently, interest earned on bank deposits was not impressive.
“Every” means every single one. So “every” means no exceptions. Until now, bank deposits have been declining for decades, and so have the amounts they pay out.
“Looking back to 1980, the Federal Reserve Funds interest was at double-digit levels, treasury bonds yield were at double-digit levels, and mortgage interest was at double-digit levels.”
By 2020, the Federal Reserve had cut interest rates by almost half from their peak of 6.25%, and mortgage rates had fallen to an average of 4.75%.
Prices Rise Again, Becoming More Expensive to Spend
However, if you look at it from another perspective, it means there’s an opportunity for banks to earn higher interest rates on depositors’ accounts.
Some banks don’t charge significantly higher fees than others for saving accounts. According to the FDIC, the average national bank fee for a checking account is $15.00 monthly.
Last week, the Federal Reserve raised its benchmark rate for the first time since 2008, but some lawmakers were surprised by the decision. They asked big banks’ chief executives why they didn’t raise their deposit accounts’ minimums.
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As interest rates keep rising, banks may be forced to increase their fees for checking accounts. Some financial institutions, particularly online-only ones without physical branches, have historically offered higher interest rate savings deposit options. These include some with more than 1%, 2%, and even 3% APY (Annual Percentage Yield).
Online banks have less overhead than traditional bank branches, and they must do more to compete with them.
Both Bankrate and WalletHub offer lists of financial institutions currently providing the best interest rates. Discover Card, CapitalOne 360, American Express Savings Account, and Marcus by Goldman Sachs. McBride, the CFO of Bankrate.com, says it’s easy to sign up for an account at any bank.
You can easily set up an online saving account with just a few minute’s worths of your time and then transfer money from your existing accounts to them. If your bank offers a new type of high yield saving account, contact them and ask if they’d be willing to let you switch to their new offering.
Banks aren’t always clearly communicating to their current account holders that they can get better interest rates elsewhere.
We’re seeing some shenanigans where banks roll out brand-new savings accounts that offer high yields while the existing savers stay in their old accounts with the old rates.
“It is easy to change to the new bank, but you must act on that opportunity by changing banks yourself.”