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
Some banks offer higher interest rates. I have a SOFI account that gives me 4.6% interest in my savings account.
The banking SOFR rate is about 5.3% right now- this is the interest rate banks can get on their deposits- so banks can make money offering just under 5.3% on accounts (minus fees). You should be able to get 4-5% pretty easily if you’re willing to search for a new bank.
Lots of banks though keep interest rates near zero. They know they’ll lose some customers by keeping their rates near zero, but they believe they’ll lose more money by offering higher rates than they lose when customers switch.
Also, there’s really no reason for a bank to offer a 2% or 3% rate. A customer who switches to a 4-5% bank will likely switch regardless of whether a bank offers 0% or 1% or 2%.
So you have a big cluster of banks offering 0% and then a cluster of banks offering 4-5%.
You said your money doubled over 4-5 years. This would be a 15-19% interest rate, I think your memory is just wrong here, because rates historically aren’t that high.
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