More than a decade after the worst of the Great Recession, American savers are still feeling the pain.
In fact, bank customers have lost an estimated $500 billion to $600 billion in interest payments on bank accounts and money market funds during that time as a result of low rates, according to a new report from Wells Fargo analyst Mike Mayo.
Federal Reserve policies in the wake of the financial crisis are to blame for the lost wealth, Mayo says.
To get the economy moving — and to keep the U.S. from falling from recession into a full-fledged economic depression — the Federal Reserve cut its benchmark federal funds rate to a low target range of 0% to 0.25% in 2009.
Banks responded to this move by slashing the rates they paid to customers with bank accounts and money market funds.
Rates remained in subterranean territory for years, costing savers billions of dollars in lost interest payments.
Recently, the Fed has begun raising rates again — nine times since 2015 — to a current range of 2.25% to 2.5%. Although rates on savings accounts and money market accounts are now a bit higher, they remain anemic by historical standards.
As Mayo says:
“Savers are still paying due to the financial crisis. It’s absolutely a wealth transfer from prudent savers to the borrowers and risk takers.”
How to boost your own savings rate
Fortunately — as with most things in life — you have the power to take a bad situation and make it a lot better.
If the return on your savings account remains stubbornly stuck in the cellar, take steps to move it to higher ground. Compare rates at various banks and credit unions, then transfer your money to the institution willing to give you the best deal.
Money Talks News Managing Editor Karla Bowsher took the plunge two years ago. In “How I Boosted My Savings Account Rate by 413 Percent,” she details how a willingness to survey the savings landscape paid big dividends. Her takeaway?
“For folks who have yet to switch to an online bank, the fastest way to get a higher interest rate for your savings is to leave a big brick-and-mortar bank for a competitive online bank.”
If the idea of moving money to an online bank makes you nervous, it shouldn’t. Check out “2-Minute Money Manager: Are Online, Internet-Only Banks Safe?” In that piece, Money Talks News founder Stacy Johnson shares insights that will put your fears to rest.
When you’re ready, start comparing rates. Investing a few minutes of time today can pay dividends for months and years to come.
Have you found a bank that pays great rates? Share your discovery with fellow savers in comments below or on our Facebook page.