Banks just aren't that into new customers right now.
There was a time when rising interest rates had a silver lining. As the rate for products like auto loans and home mortgages crept up, so did the APY banks paid on savings accounts. Today, people who are accustomed to looking for that silver lining wonder why savings rates remain so low. As of this writing, the average rate on a 30-year fixed-rate mortgage is 6.40%, while the national average APY on savings accounts is a measly 0.24%.
The answer boils down to one thing.
Swimming in cash
When a bank, credit union, or any other financial institution offers an attractive interest rate, it's designed to bring in new customers. With those customers come new deposits. For the past two years, banks have not needed new deposits.
In the early stages of the COVID-19 crisis, banks feared huge losses. In response, they built up large cushions of cash reserves. By early 2021, when it was clear those losses had not materialized, they moved to shrink their reserves. Suddenly, money they had earmarked as emergency funds flooded back into bank coffers.
Our Picks for the Best High-Yield Savings Accounts of 2024
Capital One 360 Performance Savings 
APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Open Account for Capital One 360 Performance Savings OnCapital One'sSecure Website. Member FDIC. | APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. | Min. to earn $0 |
CIT Platinum Savings
APY 4.85% APY for balances of $5,000 or more Rate info4.85% APY for balances of $5,000 or more; otherwise, 0.25% APY Min. to earn $100 to open account, $5,000 for max APY Open Account for CIT Platinum Savings OnCIT'sSecure Website. Member FDIC. | APY 4.85% APY for balances of $5,000 or more Rate info4.85% APY for balances of $5,000 or more; otherwise, 0.25% APY | Min. to earn $100 to open account, $5,000 for max APY |
American Express® High Yield Savings
APY 4.25% Rate info4.25% annual percentage yield as of September 14, 2024 Open Account for American Express® High Yield Savings OnAmerican Express'sSecure Website. Member FDIC. | APY 4.25% Rate info4.25% annual percentage yield as of September 14, 2024 | Min. to earn $0 |
In short, banks were in the position of having too much cash on hand. Flush, they have not needed new customers or new deposits. While the situation will surely change at some point, it does not appear that we're there yet.
Until banks once again need to attract new customers, the interest rate you'll earn on your savings account is unlikely to increase by much.
The online option
When it comes to getting the best bang for your buck, it pays to check out online banks. Because online banks don't have the same overhead costs as traditional banks (like maintaining physical locations), they are better positioned to pay higher interest rates on deposit accounts and to charge lower interest rates on loans. Here are a few of the advantages of online banks:
- Many online banks pay 1% to 2% more than traditional banks on savings accounts.
- Online banks typically charge low or no maintenance fees and carry no minimum deposit requirement.
- Some online banks offer instant access to your cash through partner ATMs.
- The FDIC insures online banks the same way it insures traditional brick-and-mortar banks. That's to say, each account category is covered for up to $250,000 per depositor, per insured bank.
Online banks aren't the right fit for everyone. Still, there's no rule saying you must keep all of your accounts under one roof. For example, you're free to have a checking account through a traditional bank and a savings account with an online bank. If you link the two accounts, you can easily transfer money back and forth as needed.
Some banks stand out
Although the average national APY on savings accounts is only 0.24%, some banks have managed to find a way to offer an attractive APY. They may be the minority, but these banks are worth checking out if you're looking to earn more on cash stashed away for a rainy day.
Research shows that by the time we go to bed at night, we've made an average of 35,000 decisions, both large and small. Fortunately, when it comes to deciding where you'll earn the best rate on your savings account, the decision is practically made for you.
FAQs
Banks don't need your money
If there is plenty of supply and people are saving a lot, then the banks will not need to pay out as much interest. If people are not saving as much and the banks need more money to lend out, then they will raise savings rates to attract more depositors.
Does the rise in interest rates affect savings? ›
Higher interest rates increase the return on savings. They also make the cost of borrowing more expensive.
What is the explanation for why saving rises as the interest rate rises? ›
Explain why saving rises as the interest rate rises. The higher the interest rate is, the higher the reward is for saving. So, fewer funds are consumed and more funds are saved.
Why is raising interest rates bad? ›
Higher interest rates also can lead to joblessness if the economy slows too much. Without a paycheck, consumers have the least amount of buying power at all. The Fed is the country's No. 1 inflation fighter because its tools are seen as the most effective.
Why is the US savings rate so low? ›
It is traceable to a combination of federal deficits and a continuation of a long-term downward trend in private and personal saving. Private saving would probably have been still lower during the 1980s if the federal government had not encouraged saving with new tax incentives.
Why is my savings account interest so high? ›
Savings account rates are loosely linked to the rates the Fed sets. After the central bank raises its rate, financial institutions tend to pay more interest on high-yield savings accounts to stay competitive and attract deposits.
How high will savings interest rates go in 2024? ›
According to the Summary of Economic Projections, the Fed may implement up to three 25-basis point interest rate cuts in 2024—bringing the federal funds rate closer to 4.60%.
What is a good interest rate for a savings account? ›
By comparison, interest rates for some high-yield savings accounts exceed 5.00%. Vanessa Potter, assistant vice president and branch manager at Addition Financial Credit Union, pegs the best interest rate for a savings account at 4.00% or more.
Who benefits from high interest rates? ›
With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates. Central bank monetary policies and the Fed's reserver ratio requirements also impact banking sector performance.
Why does interest rate decrease when savings increase? ›
Saving is the source for investment, as the abandonment of consumption makes the standard commodity available for investment. A higher propensity to save increases the supply of funds and reduces the interest rate.
When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.
Why raise interest rates now? ›
The Fed raises interest rates to slow the amount of money circulating through the economy and drive down aggregate demand. With higher interest rates, there will be lower demand for goods and services, and the prices for those goods and services should fall.
Who gets the money from higher interest rates? ›
Key Takeaways. Interest rates and bank profitability are connected, with banks benefiting from higher interest rates. When interest rates are higher, banks make more money by taking advantage of the greater spread between the interest they pay to their customers and the profits they earn by investing.
Who benefits and who is hurt when interest rates rise? ›
Who benefits and who is hurt when interest rates rise? Corporations with immediate capital construction needs are worse off. Households with little debt, saving a significant fraction of annual income for retirement, are better off. The federal government running persistent budget deficit is worse off.
Will savings rates go up? ›
Savings account interest rate predictions 2024
While Bank governor Andrew Bailey exercised caution, and said policymakers needed "to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much", it is expected that the rate will continue to fall.
Can you lose money in a high-yield savings account? ›
As long as you're banking with an FDIC-protected bank, you're not risking losing your money when you deposit it into a high-yield savings account. However, the rate of inflation can be higher than your APY, resulting in a negative real return, or the return after taxes and inflation are taken into account.
Why is my savings account not earning interest? ›
For example, you may need to maintain a minimum balance or set up direct deposits to receive the highest APY advertised. Some banks may have a new customer restriction — meaning that if you learn that your bank is offering a higher APY, it may only be for new customers, and that new, higher rate isn't available to you.
How often do savings account interest rates change? ›
Savings account rates are variable, meaning they may change at any time based on overall market conditions. For example, if the Federal Reserve reduces interest rates, then HYSA rates will likely decline as well.
Why doesn't everyone use high-yield savings accounts? ›
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
