Want Higher Rates on Your Savings? It’s Best to Shop Around.
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What is the main topic discussed in this episode?
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Here's your Money Briefing for Thursday, October 6th. I'm J.R. Whalen for The Wall Street Journal.
Why haven't bank savings rates risen with the Federal Reserve's rate hikes?
You hear us talk a lot in the show about how the Federal Reserve has raised interest rates several times in the past year. Higher rates can make it harder to borrow money for, say, a house or a car. But traditionally, they also mean that savings rates offered by banks are supposed to go up too. The problem is they've barely moved.
Many people's money is sitting in accounts with a pretty low yield. There are a lot of other options out there. It can really pay off to shop around.
On today's show, we'll talk with our personal finance reporter, Joe Pinsker, about why savings rates haven't moved in line with other interest rates and where you can look to get a better return on your cash. That's after the break.
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The Federal Reserve's series of interest rate increases have caused mortgage rates to nearly double in the past year, and it's increased the rate you pay on things like loans for a car or your credit card. But why haven't the interest rates on savings followed suit? And what other options are out there to earn you more money on your savings? WSJ personal finance reporter Joe Pinsker has been looking into this, and he joins us with some answers. Joe, thank you very much for being with us.
Hey, thanks for having me.
So Joe, remind us again, what's the relationship between rates the banks pay on savings and how the Federal Reserve adjusts interest rates?
Sure. So when the Fed raises rates, we would expect that over time banks will pay people more interest on their deposits.
How do banks' deposit levels from the pandemic affect current savings yields?
And that has been happening, but honestly, it's been pretty weak. The national average for interest on a savings account was about 0.06% earlier this year, and it has risen as the Fed has raised rates, but only to 0.14%, which really just isn't much.
Okay, now the Fed has raised rates several times in just the past year, but why have savings rates barely budged during that time frame?
What seems to be happening is that even though the Fed has raised rates, the real determining factor here is that banks still have plenty of deposits on hand. And that's because people's savings tended to increase during the pandemic and banks are still holding on to a lot of that cash. And so now, because they apparently don't need people to deposit more money, they don't appear to need to raise interest rates in order to attract more deposits.
So Congress has actually started asking questions about these low savings rates. What have bank executives told lawmakers?
Last month, there was a hearing on Capitol Hill where some of the CEOs of the country's largest banks came before representatives. And one lawmaker sort of made the observation that during a rising interest rate environment moment, like we're in right now, a lot of stuff is bad for consumers. But one silver lining that people are supposed to see is that the interest that they get on their savings deposits is at least supposed to be going up.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:00–0:40
2
Why haven't bank savings rates risen with the Federal Reserve's rate hikes?
0:40–2:38
3
How do banks' deposit levels from the pandemic affect current savings yields?
2:38–4:00
4
What did bank executives tell Congress about low savings rates?
4:00–5:19
5
What alternatives can savers use to earn higher interest than traditional accounts?
5:19–6:59
6
How big can the difference be between low-yield accounts and high-yield options?
6:59–7:34
Speakers
3 identifiedMore from WSJ Your Money Briefing
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