How to get a better deposit rate in era of Fed rate increases

It’s one of the most often asked questions every time the Federal Reserve hikes interest rates — when will banks and other financial institutions raise the rates they pay out on deposits? The answer: Don’t hold your breath.

Bankrate.com in North Palm Beach calculates that the average American savings account is paying a meager 0.08 percent while the average one-year CD has moved up just 0.04 percent to 0.36 percent. All this even though the U.S. central bank — which is expected to raise rates again this year after taking a pass on Wednesday — has instituted three .25 percent rate increases in just over seven months.


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The problem is, of course, that rates were at rock bottom. So even a 1 percent increase in lending rates still leaves capital at an overall cheap cost.

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But Bankrate’s chief financial analyst, Greg McBride, points out another, more critical factor. Banks, he said, are stretching their own profits by raising the price of borrowing from them while not not raising the price of depositing with them. In part, they can do this because there is plenty of money already stuffed into their vaults.

McBride points out the Federal Reserve’s latest quarterly report shows there is almost $9 trillion in U.S. savings accounts — a massive arsenal of loan dollars that’s been accumulating for more or less a decade.

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“It dates back to the financial crisis,” said McBride. “At the time, there was a flight to safety. For a lot of people, the issue was the return of their money, not so much the return on their money.”

And with the passing of time, the dollars that fled to safety have just remained parked in those deposit-insured but poor yielding accounts.

McBride, though, says consumers don’t have to accept bearish returns in exchange for peace of mind. He points out that numerous online and community banks are paying much higher yields. Bankrate.com’s survey shows the top-yielding savings account is 1.4 percent and the top-yielding 1-year CD is at 1.55 percent.

And here’s the thing: Consumers’ ability to find these institutions on Google and then to electronically transfer money to these banks, no matter where they are based geographically, is the game-changer.

“That’s the big change,” he said. “There have always been banks out there looking to attract deposits and willing to pay for those deposits. But the ability to market to consumers and to be able to take deposits has led to a proliferation of options.”

All you have to do is find seek them out. You can even start with the list at Bankrate.com, which you can access at http://www.bankrate.com/banking/savings/rates/.

McBride says to bear in mind a couple pieces of advice.

One: “It’s not an all or nothing,” he said, meaning you can put down as much or as little as you want in these accounts.

Two: They are FDIC-insured, so your money is safe, and the money you deposit in them remains liquid, so it is accessible in the event you need the funds in an emergency.

“The good thing about these accounts is they check all the boxes,” he said.

Including that all important box — a higher interest rate for you.





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