51M. As a child I had a children’s saving account with compound interest. My $100 went up to just below $200 in around 4 – 5 years. That seems like peanuts, but to a kid that was a lot.As a young adult, in the mid 1990s, I remember my older colleagues were talking seriously about CD interest rates to put away for up to five years, at 6%.
Now, in 2024, with the major banks, a one-year CD from Bank of America is 0.03%. Maximum rates for 5 years is 2.5% at Chase, no matter how much money you put away. Savings accounts compound interest rates are 0.01%, max, IF you maintain at least $10,000 in the account.Yet interest rates for a housing loan are at 7% and putting housing purchases out of reach. How can the banks do this?
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In: Economics
Because banks banks have become so deregulated that they no longer really need to compete for your deposits. Back in the 80s and 90s they had to have a certain amount of deposits relative to their loans. More deposits means they could make more loans and therefore make more money. So they could compete for something like a CD from an individual.
They could afford to pay 4% on 100k because that 100k turned into a million in loans that they were earning 8% on.
Today that’s MUCH less the case because reserve requirements are just no longer the limiting factor with most banks. Because we’ve allowed the investment banks to merge with the retail banks the limiting factor is now capital requirements and nobody gives 2 shits about deposits anymore.
That’s my understanding, but I’m no banking expert.
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