why are interest rates on bank checking/savings accounts still so low??

[Josiecat22222]

Ok, so I am in my mid forties, and therefore old enough to remember when you had a 2-3% interest rate on your bank's checking and savings accounts and could get 8-10% on CDs if willing to invest for a year or more.  When interest rates were crazy low, those rates became minimal.  However, the interest rate has been raised by .75% several times this year and there have been no increases in my interest earned at my brick and mortar bank.  The bank is surely earning a higher interest rate on the mortgages and other products using my money....so what gives?  Am I missing the boat?

And no face punches needed for having money in a brick and mortar bank...it is only our 3-6mo emergency fund.  This is not an issue that has major significance to our FIRE position, more an academic question that came up over coffee with DH this morning.

[solon]

The big five banks - BoA, Citi, Chase, US Bank, and Wells Fargo - don't need to raise rates because they already have too much cash, and they don't need to attract new depositors because they have a sufficient base of customers that won't leave them.

The next tier down HAVE raised rates. Check out Capital One, and many others.

Small, local brick-and-mortar banks don't have the cash that raising rates would cost them.

https://www.wsj.com/articles/the-42-billion-question-why-arent-americans-ditching-big-banks-11670472623?st=rggezis914qkzgf&reflink=desktopwebshare_permalink

[NotJen]

However, the interest rate has been raised by .75% several times this year and there have been no increases in my interest earned at my brick and mortar bank.  The bank is surely earning a higher interest rate on the mortgages and other products using my money....so what gives?  Am I missing the boat?

Park your savings at a bank with a better rate.  My online-based savings accounts have been consistently increasing their rates all year, and I'm earning over 3% now.  It's possible to get 4%, but I haven't made the switch because a lot of my money is temporarily tied up earning sign-up bonuses.

Check out Doctor of Credit for your options: https://www.doctorofcredit.com/high-interest-savings-to-get/

[NotJen]

The big five banks - BoA, Citi, Chase, US Bank, and Wells Fargo - don't need to raise rates because they already have too much cash, and they don't need to attract new depositors because they have a sufficient base of customers that won't leave them.

Actually, my Citi savings account is at 3.4%.  I opened it to earn a bonus, but just transferred even more in because it's the highest rate at any of my existing accounts.

[lutorm]

Yeah, our savings accounts at Capitol One are now up at 3+%.

Banks also often employ the dark pattern of introducing a new account type, and only that gets the headline rate, while "old" accounts are kept very low. This avoids having to pay your existing customers, which are unlikely to change bank, while being able to advertise to get now ones. You should periodically check whether your bank offers a different type of account with higher rate.

[reeshau]

they already have too much cash, and they don't need to attract new depositors because they have a sufficient base of customers that won't leave them.

This is the reason.  Think how much mortgage activity has declined.  While credit utilization is up, consumers don't want loans with rates so high. (They have been conditioned on low rates) Businesses are also not looking to move aggressively with a likely recession next year.

Supply and demand.

[kpd905]

As others have said, pretty much every bank offers 3%+ now.  There are others offering 5%+, but you have to jump through some hoops.

https://www.doctorofcredit.com/high-interest-savings-to-get/

[sailinlight]

UFB money market is at almost 4%

[Heckler]

*canada*

I found my big canuck bank "Smart" Saver account kept offering a paltry 0.5%, but they stopped offering it to new clients, instead created a new "Savings Amplifier" account which offered a whooping 1.6%.  So, if you were a lazy banker and just kept your "Smart" money where it was, they didn't have to increase your interest rate.  I have a name for them that rhymes with "duckers".  I dug deeper, and the investment arm of the same bank also offers a 3.65% "High Interest Savings" account that sells like a mutual fund (today offering 3.9%, where the Savings Amplifier is at 1.8% and the good old Smart is 0.8%!).

Lesson learned - shop around and move around, even if it's within your own bank.  They will duck you over for any penny of interest, if you let them.

[Josiecat22222]

A sincere thank you to all who have posted insightful answers and helpful links...I definitely need to ask some questions of my local bank to see if there are better rates available or if I have traded in "free checking" at the risk of crappy interest rates.

For those of you with some of these online banks, non big 5, etc, have you had any trouble with daily banking needs?  I'm not a big utilizer of my bank....We're FIRED, own our home/cars/etc outright.  Only write the occasional check and rarely use a debit card or ATM.  However, I like knowing I can do all of these things. 

Any of these things harder to do with Citi or Capitol One?  Or even Vanguard or Fidelity checking/savings accounts?

Thank you for all of the info so far.

[NotJen]

A sincere thank you to all who have posted insightful answers and helpful links...I definitely need to ask some questions of my local bank to see if there are better rates available or if I have traded in "free checking" at the risk of crappy interest rates.

For those of you with some of these online banks, non big 5, etc, have you had any trouble with daily banking needs?  I'm not a big utilizer of my bank....We're FIRED, own our home/cars/etc outright.  Only write the occasional check and rarely use a debit card or ATM.  However, I like knowing I can do all of these things. 

Any of these things harder to do with Citi or Capitol One?  Or even Vanguard or Fidelity checking/savings accounts?

Thank you for all of the info so far.

I keep my local brick-and-mortar Credit Union for my no-interest, free checking account, which is where most of my actual banking takes place (direct deposits, check cashing, bill pay, ATMs that I never use any more, etc.).  When working, I would transfer extra money after each paycheck to online savings.  Now that I'm FIREd, I top-up the checking account as needed from my online savings.

I've had online savings accounts for 20+ years, and have never had any issues accessing my money (although some banks have low daily/monthly transfer limits, make sure you research those before you pick a bank).  Online savings are also pretty easy to close - so if you open one, and then you learn you don't like it for any reason, you can always close it and try another bank.

[solon]

I use Capital One for checking and savings. The savings account is earning 3.3% now.

The checking account is where I do all my banking: direct deposits, bill pay, deposit paper checks, write paper checks. And although I've never used it, they offer cashiers checks and wires too. They can link to all your external accounts, Zelle is embedded, etc.

The only thing I ever use my brick-and-mortar bank for is an occasional cash deposit - and then I immediately transfer it to Capital One.

And although I'm big on Capital One, I think you'll find this level of service at nearly all banks these days.

[ChpBstrd]

I'm earning 3.04% on my checking account at a local bricks-and-mortar bank with 5 branches, assuming I do 10 debit transactions and a direct deposit each month. This account offers me automated bill pay, overdraft protection, immediate access to funds through an ATM, and lots more.

I learned long ago to avoid the big national banks. The small ones offer better deals.

[onward19]

We've been with Capital One online since before they were Capital One. This thread prompted me to check, and our dozen+ savings accounts are still at 0.30%, but they are offering 3.30% for new savings accounts. I find that highly annoying actually. Shouldn't the interest rates on existing customer accounts (some of which are only a couple of years old) also increase? SO I went to the hassle of opening a few new savings accounts and transferring over the funds from the other accounts.

[RWD]

Just got an e-mail from Ally today saying they are raising their Saving interest rate to 3.30% (APY).

[hdatontodo]

I get 4,25% from Redneck Bank on a high yield savings account (max $75K). See the doctorofcredit.com HYSA link posted earlier. Some are higher now.

I keep $5K or so in my local Wells Fargo checking account.

I still have money in Element Financial savings at 3.25% (earlier offer.)

I am opening CFG HYSA and found they are local to me.

Sent from my SM-G991U1 using Tapatalk

[habanero]

Banks pay as much interest on deposits they need to in order to maintain a sufficient deposit base as part of their overall funding mix. Dont know how it works in the US, but FDIC (or its equivalent in other countries) deposits are generally treated as stable long-term funding despite the fact that anyone can take out their money tomrrow, but there is ample evidence they don't and its treated as such on the retial side of things. This is generally by far the cheapest source of funding for a bank. Customers are lazy and unless yuou have substantial savings the interest earned won't be that much anyways.

If some banks pay higher deposit rate it means they want to attract more deposits as other sources of funding are more expensive. If they pay very high rates its generally a bad sign as the bank itself might be risky (looking at you Icelandic banks during the GFC) but as long as it's FDIC insured its pretty much a free lunch.

[Captain Pierogi]

We've been with Capital One online since before they were Capital One. This thread prompted me to check, and our dozen+ savings accounts are still at 0.30%, but they are offering 3.30% for new savings accounts. I find that highly annoying actually. Shouldn't the interest rates on existing customer accounts (some of which are only a couple of years old) also increase? SO I went to the hassle of opening a few new savings accounts and transferring over the funds from the other accounts.

Thank you for this!  I'm in the same situation, and just assumed my accounts would adjust rates accordingly.  I just went through the same hassle of opening new accounts and closing the old ones.  What a pain!

[reeshau]

FWIW, the Ally account I've had for years has been adjusting just fine through the upswing.  It's at 3.3% currently.  I've received emails each time my account's interest rate adjusts.

There's something to be said for simplicity.

[Fru-Gal]

PTF

[Josiecat22222]

Thank you all for your input.  Looks like to I need to go to my brick and mortar bank and see if they can make me an "offer I can't refuse" before I ditch them for one of the many options you all mentioned.  I really appreciate the insights and hope all of you had a wonderful holiday!
Josie

[Silrossi46]

I also have a savings with ally.  It’s currently at 3.3 as others have stated.  I have a whopping $8.30 in there at this time.

[nalor511]

You can open a fidelity CMA and get 4%+by just holding sprxx or building a tbill ladder

[Josiecat22222]

@nalor511, could you please elaborate?  What is a CMA and what is SPRXX or T bill ladder?
I've been an index fund buy and hold long term investor for a long time, but I don't know these terms.  I'm guessing SPRXX is an index fund?  Thank you!!

[Zamboni]

Posting to follow

[halfling]

I am using SoFi and Capital One and they are both giving 3.5-3.75% and have both been raising it about once a month lately.

[okisok]

https://www.frontier-ok.com/personal/deposit-rates

 Noticed this bank has 4% for 12-18 month CDs

[jnw]

And no face punches needed for having money in a brick and mortar bank...it is only our 3-6mo emergency fund.  This is not an issue that has major significance to our FIRE position, more an academic question that came up over coffee with DH this morning.

I agree it’s handy to have 3 to 6 months of cash in the bank.  You don’t have to worry about selling stocks at a loss if there’s some sort of emergency during a financial crisis.  I keep three months of cash in the bank.

[JupiterGreen]

Anybody familiar with Bask Bank? From their website:

What is the current interest rate for a Bask Interest Savings Account?
Bask Interest Savings Accounts Rates2 as of Thursday, December 29, 2022:
4.03% Annual Percentage Yield (APY)
3.95% Interest Rate

Edited to add:

Bask Bank CDs
6 mo APY 4.30%
12 mo APY 4.45%

[EchoStache]

I will clarify concerning Fidelity's CMA.

I just transitioned to this setup and, for me, it is optimal in many ways.

First, it's a one stop shop.  ALL my money is in one place.  So rather than having my bank, another place for investments, another place for savings, its just all in one place.  So easy.

Second, the CMA(cash management account) is currently yielding ~2.1% on FDIC insured cash.  Free check writing, free ATM, ATM fee reimbursement, free bill pay, etc.

I'm getting 4.14% safe return in their SPRXX money market fund on my savings.

Optimal and couldn't be easier.  IMO.

[geekette]

We've been with Capital One online since before they were Capital One. This thread prompted me to check, and our dozen+ savings accounts are still at 0.30%, but they are offering 3.30% for new savings accounts. I find that highly annoying actually. Shouldn't the interest rates on existing customer accounts (some of which are only a couple of years old) also increase? SO I went to the hassle of opening a few new savings accounts and transferring over the funds from the other accounts.

Thank you for this!  I'm in the same situation, and just assumed my accounts would adjust rates accordingly.  I just went through the same hassle of opening new accounts and closing the old ones.  What a pain!

BTW, this is the SECOND time with Capital One I've had to notice the rate on current accounts was crappy, and and go through the open a new account, transfer, and close the old account dance.  Ally is better, but circumstances mean I need to keep at least a cursory amount at Cap One.

[EchoStache]

We've been with Capital One online since before they were Capital One. This thread prompted me to check, and our dozen+ savings accounts are still at 0.30%, but they are offering 3.30% for new savings accounts. I find that highly annoying actually. Shouldn't the interest rates on existing customer accounts (some of which are only a couple of years old) also increase? SO I went to the hassle of opening a few new savings accounts and transferring over the funds from the other accounts.

Thank you for this!  I'm in the same situation, and just assumed my accounts would adjust rates accordingly.  I just went through the same hassle of opening new accounts and closing the old ones.  What a pain!

BTW, this is the SECOND time with Capital One I've had to notice the rate on current accounts was crappy, and and go through the open a new account, transfer, and close the old account dance.  Ally is better, but circumstances mean I need to keep at least a cursory amount at Cap One.

This sounds like a lot of hassle for nothing when you can get over 4% in a MM fund with Fidelity, Schwab, Vanguard etc.  Fidelity's CMA also gives ~2.1% on whatever cash you have in checking.  Also convenient to have checking/savings/investments in one convenient place.

[nalor511]

@nalor511, could you please elaborate?  What is a CMA and what is SPRXX or T bill ladder?
I've been an index fund buy and hold long term investor for a long time, but I don't know these terms.  I'm guessing SPRXX is an index fund?  Thank you!!

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=266538

I hold fzdxx (or SPRXX) for 1.5mo expenses and individual tbills for the rest

[Heckler]

We've been with Capital One online since before they were Capital One. This thread prompted me to check, and our dozen+ savings accounts are still at 0.30%, but they are offering 3.30% for new savings accounts. I find that highly annoying actually. Shouldn't the interest rates on existing customer accounts (some of which are only a couple of years old) also increase? SO I went to the hassle of opening a few new savings accounts and transferring over the funds from the other accounts.

I have a name for them that rhymes with duckers.  Good job beating the man!

[Josiecat22222]

Update: I called our local brick and mortar bank and they matched my quoted rates of 2.96% from other sources.  So I went from 0.1% to 2.96% by making two phone calls.  Pretty good ROI!  Thank you all for your insights.

[JupiterGreen]

We've been with Capital One online since before they were Capital One. This thread prompted me to check, and our dozen+ savings accounts are still at 0.30%, but they are offering 3.30% for new savings accounts. I find that highly annoying actually. Shouldn't the interest rates on existing customer accounts (some of which are only a couple of years old) also increase? SO I went to the hassle of opening a few new savings accounts and transferring over the funds from the other accounts.

Thank you for this!  I'm in the same situation, and just assumed my accounts would adjust rates accordingly.  I just went through the same hassle of opening new accounts and closing the old ones.  What a pain!

BTW, this is the SECOND time with Capital One I've had to notice the rate on current accounts was crappy, and and go through the open a new account, transfer, and close the old account dance.  Ally is better, but circumstances mean I need to keep at least a cursory amount at Cap One.

That's crazy, I'm surprised they keep customers with that policy. This is one of the reasons why I've kept my Marcus account, it automatically updates the interest rates. Right now it's at 3.75%, it's not the highest but it always seems to keep up with the competition. I've been keeping some liquid money there for many years and they've been good (easy to transfer funds etc). BTW I noticed Cap One has a 5% CD so hopefully rates will start to move upwards on all fronts

If anyone is interested in opening a Marcus account we could both get 4.75% for 3 months. message me for a referral code  :)

[afuera]

I recently switched our savings to SoFi online banking at 3.75% APY.  The only hoop was to set up direct deposit but I was able to easily change that myself through my employer portal. 
Now I just transfer money from SoFi to my old daily checking account twice a month so that I don't have to fuss with all my autopay bills, etc. Easy money.

[Michael in ABQ]

Banks are sticky. That's why they're willing to spend hundreds of dollars to attract a new customer with various bonuses because they know that for most people it takes that much to go through the hassle of changing direct deposits, automatic payments, which ATM/branch you go to, etc.

We've had a checking and savings account with our local credit union for 15 years. I'm not going to jump through hoops to earn an extra $50-100 a year in interest on my checking account balance. Our emergency fund is already in an online savings account with a 3%+ interest rate. But for our checking account which just has enough in it to handle bills for the month It's not worth it to switch banks to get a bit more interest. I have probably 20 other accounts (credit cards, investment account, other bank accounts, etc.) linked to that main checking account so it would take a lot for me to spend the time to go change all of those accounts and links. Banks are counting on this so they know that once they have you as a customer, they can get away with not providing competitive interest rates on checking and savings accounts.

[jnw]

Instead of keeping $3k emergency fund in my bank account I am now just keeping most of that in my Vanguard Brokerage account.  The settlement account is the federal money market and is currently yielding 4.52%.  I can get the cash back into my bank account in 1-3 days via ACH transfer if I need it.. but I never need it.. it just sat there in the bank for years not getting any interest.

[Josiecat22222]

@Michael in ABQ, I completely agree with you.  There are alot of people willing to do a lot of switching accounts around for 50-100 dollar bonuses, but I think you quickly reach diminishing returns.  The bonus amounts need to be pretty high to get me to jump through hoops, not to mention the security risks in opening/closing accounts and having more and more of your financial information "out there".  This is exactly why I was so pleased to have arrived at a competitive rate at my local brick and mortar bank.

[Michael in ABQ]

@Michael in ABQ, I completely agree with you.  There are alot of people willing to do a lot of switching accounts around for 50-100 dollar bonuses, but I think you quickly reach diminishing returns.  The bonus amounts need to be pretty high to get me to jump through hoops, not to mention the security risks in opening/closing accounts and having more and more of your financial information "out there".  This is exactly why I was so pleased to have arrived at a competitive rate at my local brick and mortar bank.

I opened a checking account with Wells Fargo for a bonus. But I'm self-employed so I can change my direct deposit for payroll in about 30 seconds. Once I get the bonus, I'll close the account and go back to my main checking account with my credit union. It would take a lot for me to really change my "hub" checking account - and quite frankly I can reap almost all the benefits of other accounts without that (except getting a miserly interest rate on the funds I have there for day-to-day bills).

[afuera]

I recently switched our savings to SoFi online banking at 3.75% APY.  The only hoop was to set up direct deposit but I was able to easily change that myself through my employer portal. 
Now I just transfer money from SoFi to my old daily checking account twice a month so that I don't have to fuss with all my autopay bills, etc. Easy money.

Just an update, SOFI has been great about increasing the APY periodically.  Currently at 4.40% APY without any additional requirements.  I'm still very happy I opened an account with them.

[dividendman]

Why even do this? Why not just use any bank you like, and then get 4 week T-Bills from treasurydirect. With a bit of planning you can get >5% and it's state tax exempt.

[Scandium]

I recently switched our savings to SoFi online banking at 3.75% APY.  The only hoop was to set up direct deposit but I was able to easily change that myself through my employer portal. 
Now I just transfer money from SoFi to my old daily checking account twice a month so that I don't have to fuss with all my autopay bills, etc. Easy money.

Just an update, SOFI has been great about increasing the APY periodically.  Currently at 4.40% APY without any additional requirements.  I'm still very happy I opened an account with them.

Discover online savings account has also been good about this. A bit of lag, but they've been raising rates reasonably consistently. Up to 4.15% now, CDs at 5%.

For checking I don't really care, since I only keep the bare minimum there, and use Schwab for that. Mainly for the zero-fee at any ATM, billpay, no foreign fees, and tied to my brokerage. I've never stepped foot in a Schwab bank since I got my account there 8+ years ago now. Though I think there are some around..? So I really see no need to have a local, mom and pop physical bank.