Why are interest rates on high yield savings accounts higher in the US than in the EU while USD TO EUR remains relatively stable?
In: Economics
The international exchange rates do not directly affect the interest rates banks pay out on savings accounts. Generally speaking, the most important factors affecting those rates are how badly the bank needs to get funds and what are the prevailing interest rates within each country (and in the European bloc, with respect to the euro). Individual banks may raise or lower their rate a bit based on their own books, but the general rates rise and fall based on their country’s or jurisdiction’s prevailing rates. U.S. rates went up because the Federal Reserve raised interest rates over the past couple years.
The high rates in the US don’t have to do with the exchange rate. It’s because the federal reserve in the US is keeping the interest rate high. The interest rate they set determines the return rate for government bonds. So when interest rates are high like now, government bonds will offer good returns, and if a savings account is lower yield people will take their money out to buy bonds. But when interest rates are high banks can also make a ton of money by giving out loans and earning those higher interest payments, so they really want your money in their bank. They raise returns on those accounts until they are about the same as the return on short term bonds.
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