Savings Account Interest Rates Are Headed Lower
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Just when interest rates on savings and CDs were moving higher, they're about to turn around. We'll explain why in a moment, including where to still find decent rates. First, these money and market stories you should know.
What immediate market headlines should savers know before we discuss rates?
Despite falling mortgage rates and a strong economy, the U.S. housing market continued to soften in April. Existing home sales fell 0.4% in April from the previous month. Compared with a year earlier, sales in April declined 4.4%. That's the 14th straight month of annual declines. National Association of Realtors says the market continues to shift in favor of buyers. The median sale price for an existing home in April was $267,300. That's up 3.5% from a year earlier. Home price appreciation has slowed significantly from a year ago when price growth was running over 5%. And is it okay to cheat on your taxes? About 10% in a poll said yes. That was a poll conducted for the IRS, and that's up slightly from a year ago.
Why are savings and CD rates poised to turn lower despite recent increases?
Meanwhile, 85% of people said that no amount of cheating is permissible. That's down from 88% last year. But is it every American's civic duty to pay taxes? That was an actual question in the poll. 95% either believed strongly or mostly agreed, the same as the year before.
You may have noticed your rates on bank deposits have been slowly creeping upward. That upward journey, though, may be about to hit a U-turn. Those rates will be coming down soon, most likely. And Wall Street Journal reporter Alison Prang is on the line with us to explain. So, Alison, it's not like the rates on deposits have shot up dramatically, but they've moved up nonetheless. And the Federal Reserve could be the factor that causes them to turn around.
Yeah, exactly. So banks are helped. Their profits are helped when the Fed raises rates because they're able to charge more to make more money on loans that adjust when those rates adjust. But at the same time, then there tends to be a lag before this happens. But then they ultimately also, in theory, end up paying more to their depositors. So, you know, banks are always trying to balance that their their profit margins in that respect, what they're paying out of interest versus what they're bringing in. And the Fed. So, yeah, exactly what the Fed does down the line is could potentially impact this multiple. This one analyst I talked to, Matthew Breeze, one of the things he says was if the Fed cuts rates this year, you know, banks, he doesn't think banks are going to wait essentially to, you know, try to cut those deposit costs.
You know, it's just better generally for profit, just factually speaking.
So he thinks that when the Fed cuts rates, that the interest rates will come down for deposits as well?
Yeah, exactly. Or that's in theory what would happen with that. You know, if banks are trying to lower their deposit costs, they're trying to, you know, they're in theory they could cut the rates they're paying on deposits. There's this other kind of more complicated thing happening and happening in the industry that, you know, banks with all the deposits they have, they're just seeing more customers move their money around. into accounts that pay interest instead of non-interest bearing accounts. So, you know, that's going to drive up what they're paying in deposits to overall. But yeah, you could potentially see, I think, if the Fed does end up cutting rates that, you know, people are going to hop to, banks are going to hop to, to also try to cut, you know, the amount of money they're paying out for interest.
It really is interesting how it's like a seesaw because a rate cut by the Fed typically sends the stock market upward and investors can score profits there, but they'll take it on the chin in their savings accounts. And the average savings and deposit rates right now, they're averaging, depending upon where you go to bank, about 1% or so. We really haven't seen rates this high in about five years.
Yeah, what's really interesting with this is that, yeah, we talk about, you know, that rates have been increasing generally and whatnot.
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