Finally ... Savers Are Seeing Higher Deposit Rates
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Your Money Briefing. Money and market stories from the Wall Street Journal. Welcome to Your Money Briefing. This is Charlie Turner in New York. Some good news for bank customers. Banks are finally starting to pay significantly higher deposit rates.
As rates move higher and higher, the pressure for them to pay out grows. And I think we're really at an inflection point now where people are going to start seeing better deposit rates.
We'll explore this in a moment with The Wall Street Journal's Aaron Back. First, these top money headlines. A new monthly survey shows consumers turning decidedly pessimistic on a number of fronts. The July survey by the New York Federal Reserve found declines in one-year expectations from consumers on earnings growth, household spending, stock prices, and house prices. The survey was based on a panel of 1,300 households across the U.S., For example, median one-year-ahead earnings growth expectations fell from 2.7 percent in June to 2.4 percent in July. The decline in earnings expectations was broad-based across income groups, but largest among those below the age of 40. It looks like more young people are deciding against going to college and instead opting to train for a job while still in high school.
And it's free. The Wall Street Journal says there's been a revival in vocational training or career education programs. More big companies are tying up with local high schools to help equip students with skills for steady employment. Volkswagen is helping schools in Tennessee modernize their engineering programs. Tesla is partnering with Nevada schools on an advanced manufacturing curriculum. In Rhode Island, Coventry High School established its welding program after Electric Boat, one of the state's largest employers, declared it was looking to hire 14,000 new employees in the next decade. Nationally, the number of high school students concentrating in career education has risen 22 percent over the past decade to 3.6 million.
That's good news for businesses that are trying to find workers in a tight labor market. Coming up, banks are finally boosting their deposit rates. This is your money briefing from The Wall Street Journal. Welcome back. It seems like ages since savers have earned a decent rate on their bank deposits.
What are the top money headlines and consumer sentiment findings from the New York Fed survey?
Actually, it's more like a decade. But now the days of depositors earning next to nothing are ending. That's good news for consumers, but bad news for some banks, according to Aaron Back, whose Wall Street Journal heard-on-the-street columnist. Now, Aaron, I assume these higher rates have something to do with interest rate hikes by the Federal Reserve?
Absolutely. It takes a while, though, for those Federal Reserve rate hikes to feed through to the consumer. Partially, that's just because the Federal Reserve, as it hikes, the banks take a while to respond on purpose. They're not eager to pay out money to the depositors. It costs them money. But as rates move higher and higher, the pressure for them to pay out grows. And I think we're really at an inflection point now where people are going to start seeing better deposit rates.
And where exactly are short-term interest rates right now, the federal funds rate? I believe it's between one and three-quarters and two right now.
There's a lot of debate as to where exactly that turning point is. If you look at past cycles, it was a little bit higher. But we were also starting from a higher point in past cycles. This time, we were starting at zero. So the exact number, we can debate. But what's clear is that the response is accelerating. So banks' deposit costs, about 44% of the increase in rates was passed on to depositors last quarter. And that's up from only 20-some percent in previous quarters. So clearly, banks are now passing on more of those hikes to consumers. And we're finally moving out of the days where consumers are used to earning nothing.
And I assume this is also because of online competition?
Absolutely. So one difference between this rate hike cycle and other rate hike cycles is that we were at zero for a decade this time.
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