Once upon a time, banks rewarded customers who opened savings accounts with stuffed lions, canvas totes – and interest. Lots of it.
Those days are gone. The average savings account now yields about 0.45 percent annual interest, according to the FDIC. Rates remain stubbornly low for savers even as banks charge ever-steeper rates to borrowers: The prime lending rate — the interest that banks charge their most creditworthy customers — stands at 8.5 percent, its highest mark in two decades.
As a rule, savings-account interest rates rise and fall with the prime rate. The more banks earn from borrowers, the more they can afford to reward depositors. When the Fed raises rates, banks tend to respond by paying more interest on their “high-yield” savings accounts.
But that system has broken down in the last 18 months. The Fed raised the benchmark Federal Funds Rate from effectively zero to over 5%, a two-decade high. Banks did not follow suit.
“The banks have not kept up,” said Jeff Farrar, a certified financial planner and managing director of Procyon Partners in Connecticut.
Learn more: Best current CD rates
Why not try to attract new customers and their money?
Because big banks are flush with deposits. That is partly a result of the pandemic and federal stimulus campaign, which encouraged the nation to save. And it’s partly consumer inertia. Bank customers trust the big brands, and they tend to stay put.
Customers don’t change savings accounts
“We found that, on average,…
