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
You were a child during a high inflation era (the late 1970s) and during that period the [Federal Reserve used an extremely high interest rate regime](https://fred.stlouisfed.org/graph/?g=1hdd4) to get inflation back under control.
Today the 4 very large banks don’t need to offer competitive interest rates to attract deposits instead they compete on their Too Big to Fail status and national footprint of branches and ATMs. If you want competitive rates you need to take your savings to a smaller less convenient bank, however the Fed uses tools beyond pure interest rates to manage inflation so market rates are not as high as when you were a kid.
Mortgages remain high relative to other interest rates because the government has incentivized many firms to leave originating mortgages and the spreads between mortgage and treasury rates are much wider than when you were a child.
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