Why aren’t interest rates on savings accounts going up too?
Jen Skoglund is a stay-at-home mom of two in Westwood. She and her husband have been diligently building a nest egg for years.
“For short-term savings, we don’t do much other than a savings account,” Skoglund said.
Skoglund doesn’t know how much interest they earn for their savings, but she knows it’s not much.
“It’s so low. I don’t even know the rate, but it’s very low,” Skoglund said.
Interest rates are rising on credit cards, loans and mortgages, but remain shockingly low on traditional savings accounts. The average national interest rate for a savings account is 0.06%, according to Bankrate.com.
Mass. Dry. Commonwealth William Galvin said there was no indication banks were planning to raise interest rates on savings accounts, and he doesn’t think that’s fair.
“I think it’s a double whammy for consumers,” Galvin said. “It’s a case where banks will win because they charge higher rates for their credit card and loan services, but consumers will simultaneously lose because they don’t benefit from the high interest rates that banks get. I think that’s wrong.”
Galvin’s office does not have the power to regulate banks, it happens at the federal level. But the Sec. of the Commonwealth oversees in-house banks that set up cash transfer accounts in Massachusetts. Sweep accounts are used by brokerage firms to hold investors’ money while waiting to be invested.
Galvin last month launched a survey of six financial institutions — TD Ameritrade, Merrill Lynch, LPL Financial, Ameriprise, Securities America and SoFi — to determine whether those banks planned to raise interest rates on sweep accounts. Galvin said his initial investigation revealed billions of dollars in Massachusetts sweep accounts.
“My request to these entities is how much are you going to raise your interest rates? And so far we are still waiting for a response,” Galvin said.
“You have to say something about it. We can’t just say too bad. It’s a significant amount of money,” he said.
Bankrate says people should consider putting their savings in online banks with a “high yield savings account”. Online banks can afford to offer better rates because they don’t have the same overhead costs as a traditional bank. According to Bankrate, online banks like Bask Bank, Lending Club and CIT Bank have interest rates ten times higher than the national average.
“A big difference between the savings accounts offered by online banks and those offered by traditional banks is the [Annual Percentage Yield] Free. Online banks generally offer much more competitive returns. Traditional banks tend to offer something closer to the national average, which is currently 0.06% APY, or they offer something close to nothing – 0.01% APY,” Bankrate said.
Skoglund said she and her husband would continue to build their savings, even if their current bank doesn’t reward them for it.
“We keep some of the savings, we invest some of them, but I mean the interest rates you get on a savings account, it’s just not worth it,” Skoglund said. .
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