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
A savings account can provide high interest when the bank can be confident that money will mostly be there for a long time. 50 years ago that was true. People would leave money in a saving account for years while they saved up for things. Today, most people don’t do that. If they have thousands of dollar they won’t need for months or years they will invest it or try a GIC or some other instrument that outperforms a savings account. So savings accounts typically average much lower and less stable balances. So they can’t afford to offer those interest rates because they can’t use that money for anything else, like loans.
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