Saving

Wait, Weren't Rising Interest Rates Supposed to Help Savers?

We’ve heard so much doom and gloom about the Fed’s December decision to increase interest rates and continue doing so throughout 2017 (including a .25 percent increase on March 15): More expensive credit card debt! Higher mortgage rates

So it’s easy to forget the silver lining: Higher rates are typically a good thing for savers. Assuming banks ever actually raise rates on our savings accounts. Surprise: While banks raced to charge more for money they lend us, they’ve been slow to reward savers.

How slow?

Painfully slow. DepositAccounts.com says average savings account rates “jumped” from 0.180 percent in late December to 0.182 percent in January—a whole .002 percent. I’ll spare you the math, but that’s not even an extra penny earned each year on a $1,000 balance.

Meanwhile, credit card interest rates have climbed .31 percent in the past six months.

Why are banks so stingy?

First, consider this: The traditional reason banks offer interest to savers is because they want to lend our cash to other people at higher rates.

While modern regulations only require banks to have a small percentage of deposits covering the money they lend, the demand for loans still helps set the demand for savings, says Ken Tumin, creator of DepositAccounts.com. With the economy still moving in fits and starts, we probably can’t expect loan demand to significantly push up the demand for deposits.

Any other reasons we’re not seeing higher rates?

Plain ol’ market forces: Banks won’t raise rates until other banks raise rates. Why should they? “It is very much competitor driven,” Tumin says.

What’s more, banks feel like the Fed gave them permission to freeze rates last year: In late 2015, the Fed signaled it might raise the federal funds rate (at which banks lend to each other) several times in 2016, but only ended up doing so once in December. “Banks want to see two or three rate hikes before they raise the depositor rate,” Tumin says.

Ultimately, though, the real reason we haven’t seen a meaningful uptick might have something to do with “asymmetric price adjustment.”

Asymmetric what?

It sounds complicated, but we already know about this phenomenon from its most obvious example: When the price of oil gyrates, gas prices always go up faster than they go down. For years, economists didn’t believe whiny consumers complaining about this. But recent studies show it’s true: Price “stickiness” usually hurts consumers and helps companies.

In this case, banks are enjoying the widening spread between the price they pay us to hold our money and what they charge to lend it—and are in no hurry to change that.

But there’s hope…

Tumin says he’s recently seen a few Internet banks raise savings and money market account rates. “It’s the first signs there are some upward movements,” he says. “Internet banks tend to be more aggressive.”

We should be, too. Don’t just wait around for better rates to come to your bank—because they may not anytime soon. Instead, keep an eye out for banks willing to take that first step and consider moving your money. According to comparison site Bankrate, more than a dozen banks are already paying out 1 percent or more a year.

acorns+cnbcacorns cnbc

Join Acorns

GET STARTED

About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2019 Acorns and/or its affiliates.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.