Saving Account Interest Rate Data | What’s It All Mean Anyway?
So Why Bother With an Online Account?
Good question, but there certainly is a valid reason. Online or so-called ‘high yield’ saving accounts actually do perform substantially better than local savings accounts over time, it’s just hard to differentiate between the two right now because rates are so low. As rates recover what you find is that while the average savings rate stay flat at the present low rates (average rate for all savings accounts is about 0.3% – highway robbery in my humble opinion), the online bank rates will rise and fall with the Federal Reserve rate.
Mortgage Rates Jump with Fed Rate, Why Don’t Local Saving Rates?
This is another good question. Why DO local banks flatline their savings deposit rates when the Fed Fund rates go up? Would you honestly be surprised if I told you the answer was because most of us are sheep and not likely to move our money to a better performing account like an online savings account? It’s true – your local bank counts on you remaining ignorant about superior earning account opportunities. They figure as long as you don’t know about those accounts or are afraid of banking online or are confused as to how easy it is to open a better performing account you won’t switch.
It’s Easy Money in the Bank (for Them!)
Each customer that keeps the bulk of their savings at the local bank in a checking or savings account is making easy money for their bank. Bank deposits from clients like you an I are essentially interest-free or low-interest loans to the bank. Local savings and loans have learned (the hard way in some cases) that there are a certain percentage of local funds/accounts that they do not have to compete for to keep. They then choose to gain those customers quietly by any means possible OTHER than rate competition. They’ll offer low interest loans, offer “free” checking or savings accounts, introductory credit cards, etc… ANYTHING to get your low interest deposit account business.
The Reason Is Simple – It’s Free Financing for THEM!
When you go to a bank to borrow money, you typically borrow at the Prime Lending Rate plus some sort of premium depending on the type of loan, the amount financed, and your credit rating. Did you know that your local bank ALSO borrows from other banks and investors at the Prime Rate plus some premium? Yes, your bank BORROWS money at a similar rate as you… EXCEPT on the money they borrow DIRECTLY FROM YOU via your savings and checking accounts. The money in those low saving account interest rate accounts is borrowed from you at whatever pitance rate their paying you to FINANCE THEIR operations.
Working with Your Local Bank Isn’t a Bad Thing
It may sound evil the way your bank pays back interest on your deposits. It isn’t. Local banks provide a valuable service to the community in general and you specifically. The caveat here is to remind you not to be OVERLY generous about the amount of money you lend to your bank.
