As rates rise, will your savings account be left behind?
Every time the Federal Reserve raises the federal funds rate, it causes ripple effects in the financial world.
For some consumers, such as those with credit card debt, the impact can be negative.
But during most rate hike cycles, those with savings accounts benefit. A rise in the federal funds rate almost always results in a rise in savings account rates.
Maybe not this time, though. Although the Federal Reserve is expected to raise rates multiple times this year — likely starting next month — your savings account rate might not move much, according to a new report in The Wall Street Journal.
According to the WSJ:
“Banks have little incentive to increase the interest they pay on deposits because [bank customers] just don’t need the money. Government stimulus measures have ballooned Americans’ bank account balances and businesses are teeming with cash.
Total deposits in US commercial banks jumped to $18.1 trillion, according to the newspaper. Just before the pandemic, they were only $13.3 trillion.
The WSJ reports that in the coming months, banks will likely try to boost profits on loans, which plunged when the Federal Reserve cut rates to near zero as the pandemic hit.
Meanwhile, raising rates on savings accounts is nowhere on the agenda, at least for now, according to a WSJ roundup of banks’ recent quarterly earnings calls. .
When will savings account rates increase? The WSJ says that once banks start raising more money from making new loans, they’ll likely start raising deposit rates as well.
What does this mean to you
If you’ve been patiently waiting for the day your savings account rate will rise, you may be disappointed.
But that doesn’t mean you have to give up on getting better returns on your money.
As we reported, Series I Savings Bonds currently pay 7.12% risk-free. For more on these bonds – and their pros and cons – check out “This Risk-Free Bond Now Pays 7.12%”.
If you prefer to keep your money in banks and credit unions, stop by Money Talks News Solution Center and find a great savings account rate or a great rate on a CD.
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