Whenever the Federal Reserve hikes the federal funds rate, it causes ripple effects across the financial world.
For some consumers — such as those with credit card debt — the impact can be negative.
But during most rate-hike cycles, those with savings accounts benefit. A rising federal funds rate almost always translates into higher savings account rates.
Maybe not this time, however. Although the Federal Reserve is expected to raise rates several times this year — likely beginning next month — your savings account rate might not budge much, according to a new report in The Wall Street Journal.
According to the WSJ:
“Banks have little incentive to raise the interest they pay on deposits because [bank customers] simply don’t need the money. Government stimulus plumped up Americans’ bank-account balances, and companies are flush with cash.”
Total deposits at U.S. commercial banks have jumped to $18.1 trillion, according to the newspaper. Just before the pandemic, they were a mere $13.3 trillion.
The WSJ reports that in the coming months, banks are likely to try to boost their lending profits, which plunged as the Federal Reserve cut rates to near zero as the pandemic arrived.
Meanwhile, raising the rates on savings accounts is nowhere on the agenda, at least for now, according to a WSJ roundup of recent bank quarterly earnings calls.
When will savings account rates rise? The WSJ says once banks begin to rake in more cash from making new loans, the banks will likely begin to raise deposit rates as well.
What this means for you
If you have been patiently awaiting the day when your savings account rate would rise, you may be destined for disappointment.
But that doesn’t mean you have to give up on getting better returns on your money.
As we have reported, Series I savings bonds are currently paying a risk-free 7.12%. For more on these bonds — and their pros and cons — check out “This Risk-Free Bond Now Pays 7.12%.”
If you prefer to keep your money at banks and credit unions, stop by Money Talks News’ Solutions Center and find a great savings account rate or a great rate on a CD.