Why Interest on Your Savings Probably Won't Go Up Anytime Soon
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Here's your money briefing for Thursday, February 10th. I'm J.R. Whelan for The Wall Street Journal. A savings account is a safe place to put your money, but lately the interest on that savings has been next to nothing. Many savers felt they might catch a break if the Fed goes through with its plans to start raising interest rates next month, but that's probably not the case.
The incentive for banks to raise deposit rates, one of the main ones typically, is to gather those deposits. But because the system is so flush with deposits, they don't need to do that.
On today's show, our banking reporter Orla McCaffrey will break down why interest on savings accounts probably isn't going higher anytime soon. In other ways, you could get a higher return for your money. That's after the break.
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What is the episode about and who is the guest explaining savings rates?
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The Federal Reserve is expected to start raising interest rates next month. Normally, when it does that, it usually means that people with money in a savings account can expect the interest on their cash to tick higher. But you might not want to get your hopes up this time. Why not? WSJ Banking reporter Orla McCaffrey has some answers, and she joins me now. Hey, Orla, thanks for being here.
Thanks for having me.
So, Orla, can you just do some number crunching for us for a moment? What are interest rates averaging on savings accounts these days?
Sure. So for high yield accounts, it's about half a percent down from about 1.5 percent a couple of years ago. And on accounts at traditional banks, it's about 0.06 percent. So so pretty low.
Wow. 0.06 percent. That's really low. But it seems like these rates have been low for a long time. Why is that?
Right. So it's kind of for two reasons. So rates first started falling in the spring of 2020 when the Fed cut its short-term interest rate in response to the pandemic. And a couple of months after that, people really started piling money into their savings account. People were getting stimulus checks, getting unemployment that sometimes was more than their normal income, and just really putting that money into bank accounts, savings accounts, because they couldn't spend it on travel and they couldn't spending on entertainment, or maybe some of their costs were reduced because they weren't commuting. So that money has just really built up over time and a lot of it has stuck around at banks. So at the same time, banks couldn't charge a lot on loans because interest rates were low and they also were flush with deposits.
So that means they didn't have to pay borrowers a lot really to borrow that money. And that's why rates on these savings accounts have gone down so much.
You know, Orla, we sometimes see ads for savings banks, online savings banks in particular, encouraging people to open up accounts and store money there. How does that square with these ultra-low rates?
Right. So that actually is probably one thing that has changed over the past 18 months or two years. Banks are just flush deposits.
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