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 are not required to put your money into a savings account at a bank. If you want higher rates, you can get them elsewhere. If enough people actually do this, and banks want cash in savings accounts, they will have to raise their interest rates.
Bluntly, I’m not sure banks care all that much if you leave a few hundred or thousand bucks in a savings account (and if you’re putting hundreds of thousands or millions into a standard savings account, that’s a whole different problem). Maintaining these accounts is pretty much just a cost to them – having to keep track of all the accounts and all the potential things that could go wrong. And for what? So they have that money to use as part of their reserves? They can get cheap and plentiful money elsewhere, so they’re not chasing you for yours. Besides, they’d much rather you put that cash into things that earn them commissions and fees day in and day out – savings accounts just don’t do that. In short, the banks are somewhere between indifferent and discouraging when it comes to small savings accounts, and the interest they pay reflects that. Don’t like it? Invest/save another way.
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