Are High Yield Savings Account Rates On Their Way Down?
Just a few years ago, savers were enjoying high yield savings account rates over 5%. Then came the crash. The Fed promptly cut overnight rates to near zero, driving the rates available on savings accounts down with it.
A Downward Trend In High Yield Savings Account Rates
Things have gotten a bit better since then, with some of the best savings account rates (such as Smartypig) topping 2%. As the market recovery gained steam, so too did the anticipation that the Fed might begin raising rates again. Well, that hasn’t happened, and just the other day the Federal Reserve announced they would be leaving rates low for a while, perhaps a long while.
Rate increases stalled, and the past few months I’ve noticed many banks lowering their interest rates. I first noticed it with ING Direct (my online savings account of choice) and then Ally Bank (whose rates I track because I have an affiliate relationship with them). I’m sure it’s been happening with other banks as well, but I don’t pay too much attention to most of the rest of them.
Is this the beginning of a trend? Are low savings account rates here to stay? Nobody knows for sure, but I would guess that savings account rates will remain low until the Federal Reserve makes a move. I believe previous rises were due primarily to banks competing with each other for a flood of capital from the public equity and debt markets as well as an increase in the general U.S. savings rate. Now that the easy business has been won, banks are lowering rates again, betting their accounts are sticky enough to get away with shaving a few tenths of a percent off their interest expense.
If the Fed announces a significant change overnight rates, I would expect high interest savings account rates to rise proportionally. Until then, savers will have to make due with rates in the low-1% range.
RSS Feed
Email
That’s the big question in all of this: When will the Fed raise rates? Rates have to eventually go up because the Fed can’t keep giving money away to the banks. I’ve heard all sorts of speculation but I think the consensus is in the second half of the year.
Even with the low rates, a person should still make sure to have adequate savings put away.
I recommend checking out http://www.depositaccounts.com. There you can find the highest rates on checking and savings accounts, as well as CD’s.
I currently have my money in a rewards checking account (that I found on http://www.depositaccounts.com, BTW) that’s paying 4%. You won’t find a savings account or CD with that interest rate.
Not only will savings account rates remain low for some time, but they will probably fall even lower from where they are now. Every day we are getting closer to 1.00% being considered a high rate.