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
The savings account built into my phone is 4.5%. I just started a CD at 5.25%. My other savings accounts are at 5%, and my cash sitting in my investment accounts is at 5%. I didn’t even shop around, I just kept my money in my accounts I’ve always used and their rates just went up. Just don’t put your money in a checking account.
What you’re describing is not what is happening right now, unless you mean specifically 6%, and it’s really just a function of inflation vs. the federal rates.
I just got a 5.5% 10 month CD. It was an inducement to open a no fee checking account at a local bank. I was upfront with the banker that I was there only for the CD and would probably cancel the account in 10 months. He didn’t object at all. Sometimes you just have to shop around.
A lot of people have answered the core question quite well so I won’t bother going into the details as to the why. All I can say is that while it is true that banks do indeed not offer good rates any more, there are still some great options out there that can offer as high as 5% for a HYSA and as high as 10% in the form of long term investments. I know people recoil at the mention of the word investment but it’s really the only proper way to actually get returns on your money and not all of it is a gamble as many people think. CDs are simply just not worth it any more. Too many terms and restrictions for too little returns.
Depends if the bank needs your cash or not. Smaller banks have been a bit desperate and offering 5% or so for a while now. Like anything, shop around.
You’re overthinking this- they don’t need/want the deposits, therefore they have no reason to offer competitive rates.
Same reasoning if you were to get a bid for work and it comes in stupidly high…they don’t want to do the job, but will do it for massive profits.
Interest rates (and inflation) were much higher in the early 1980s than they are now. Savings/CD rates are loosely based on the current Fed interest rates. My mortgage in 2000 was at 7.5%. Now it’s at 5% after refinance.
I am happy to educate you good sir/madam!
The biggest banks received fucktons of deposits after the recent banking crisis blip when there was a run on community banks, deposits moved to the more “secure” large banks. As a result, they don’t need your money that badly so they will happily pay you pennies on the dollar compared to many smaller banks today. You are also looking at the wrong places for good yields, but I’ll get more into that below.
Also, as for how much interest they charge, that’s the result of the Federal Reserve raising interest rates. Banks need to be able to borrow money in order to fund their loans, the Fed acts as a lender of last resort, so when they raise the cost of funds, it becomes more expensive for banks to fund loans, so they have to charge more. The market will bear a higher interest rate as the Fed raises rates, and a lower one as the Fed lowers rates. That’s how monetary policy and “tightening” works to control inflation. If the Fed raises interest rates then banks have to charge more for loans which means people borrow less money which means they can’t buy as much stuff and the total amount of money in the supply goes down which means the economy cools off and each dollar is worth more Aka inflation goes down.
Now for more useful detail for you:
I have a CD over 5% for 8 months. My savings account gets over 4% yield. Those are EagleBank and Capital One respectively.
You need to look at High Yield Savings (HYS) accounts and better CD options. Many regional and community banks have these options.
Chase Savings just suck. The average savings rate is like .46%. Ally’s is currently 4.35%. There are other banks with high-interest savings.
Also 7% for a mortgage is not even really high. It’s only relatively high compared to the post crash era and because of the competitive nature of the housing market in recent years. If you were a kid in the 70s or 80s the mortgage on your house was almost certainly more than 7% and rates around that time got as high as like 17%.
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.
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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