Community Chat

[handygal2]

This article in the NY Post explains why, even though Janet Yellin and the Fed have raised interest rates four times since December 2015, we're not seeing higher rates on our savings:

"Even though Fed chief Janet Yellen has raised its target federal funds rate four times since December 2015 — with a possible fifth increase happening Wednesday — don’t expect interest on your savings deposits to rise any time soon.

In part, that’s because banks just don’t need your money.

As Lance Pan points out in a recent report by Capital Advisors Group, among jumbo deposits (greater than $100,000), the money market rate has risen 0.01 percent, to 0.12 percent, and the one-month certificate of deposit (CD) rate was unchanged at 0.07 percent, while the three-month CD rate rose only 0.02 percent, to 0.11 percent, in the period since the Fed began tightening, raising the Fed funds target rate by an overall 1 percent.

“Despite the 1 percent total increase in the Fed funds over the last 19 months, money market and short-term CD rates barely budged,” Pan writes. “Historically, these rates tended to rise with the Fed funds rate, sometimes exceeding the benchmark rate increases.”

Since the Great Recession, bank reserves have gone from just over $8 billion at the end of 2007 to a peak of $2.8 trillion in late 2014.

Currently, even as speculation swirls as to the timing of possible Fed divestment of these assets, bank reserves still stand at $2.2 trillion (as of June 30), abundant reserves that “provide sufficient liquidity, and this lessens the need for banks to pay higher rates on deposits,” Pan writes.

Analyst Chris McGratty of Keefe Bruyette & Woods agrees, but stresses that this is only part of the story. “To the extent that banks are brimming with liquidity, they can allow deposits to flow out,” he says.

At the same time, the lag in interest rates offered to depositors also reflects the timidity of the current round of tightening. “We haven’t had a tightening cycle since 2004, and a lot has changed in 13 to 14 years.”

McGratty and other bank industry analysts expect this situation to correct itself and restore incentives (and opportunities) for savings.

“Over the next couple of years, there will be a migration away from noninterest-bearing deposits,” Pan predicts."

[hyacinth003]

Never works out for the average person!

I'd like to move money out of the 401K, but it's the only way we're making money.  So, we are taking the risk because there's little other way to make money on your money now.

Hyacinth

[Laura14]

Very true.  I make almost 20% a year in my 401K.  My savings I get .01%. It's ridiculous.  

I make myself sick thinking of all the time I will never get back with my savings account.  Again, do the right thing and you get zero reward.  

[handygal2]

@hyacinth003, @Laura14: I agree. I think it's a shame that people need to take risks with their principal in order to get a decent rate of return on their money.

[CelticCrafter]

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@hyacinth003 wrote:

Never works out for the average person!

I'd like to move money out of the 401K, but it's the only way we're making money.  So, we are taking the risk because there's little other way to make money on your money now.

Hyacinth

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Our financial advisor wants us to start taking money from our annuity.

I get his reasoning behind it but we don't need it and for us to take it from there where it's earning 6% and put it into regular savings, money market or CD doesn't make any sense at all to us.

[sidsmom]

In this over-consumption era, the best savings account is not spending.

Reducing your footprint...and even little things like eating simply, 

will make a huge positive impact on your pocketbook. 

[gidgetgh]

When I found an 11 month cd that paid 1.0% interest, in a traditional bank no less,  I felt like I'd hit pay dirt.  And then renewed it, for the same rate, when it matured in July. 

Then I found another "good" cd rate. 1.25% for 18 months. Also at a traditional bank. We jumped on that one also. 

Compared to the other rates out there, I feel like we'd hit gold, LOL. 

Also found a very good money market rate online and took advantage of that. 

Whoever thought we'd be celebrating those rates. Typically around us, it's .1 and .2. I was thrilled to find the ones I did. 

[handygal2]

Even when we think we're getting a "good" savings rate from a bank-- over one percent-- it doesn't even keep up with the rate of inflation!  

ETA: ...and then we have to pay income taxes on that paltry amount, lol.

[esmerelda]

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@CelticCrafter wrote:

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@hyacinth003 wrote:

Never works out for the average person!

I'd like to move money out of the 401K, but it's the only way we're making money.  So, we are taking the risk because there's little other way to make money on your money now.

Hyacinth

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Our financial advisor wants us to start taking money from our annuity.

I get his reasoning behind it but we don't need it and for us to take it from there where it's earning 6% and put it into regular savings, money market or CD doesn't make any sense at all to us.

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@CelticCrafter  First, he works for you.  He's not your boss.

Next, has he shared his reasons why?  Do they make sense?  Do you agree with them?

[Snowpuppy]

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@handygal2 wrote:

This article in the NY Post explains why, even though Janet Yellin and the Fed have raised interest rates four times since December 2015, we're not seeing higher rates on our savings:

"Even though Fed chief Janet Yellen has raised its target federal funds rate four times since December 2015 — with a possible fifth increase happening Wednesday — don’t expect interest on your savings deposits to rise any time soon.

In part, that’s because banks just don’t need your money.

As Lance Pan points out in a recent report by Capital Advisors Group, among jumbo deposits (greater than $100,000), the money market rate has risen 0.01 percent, to 0.12 percent, and the one-month certificate of deposit (CD) rate was unchanged at 0.07 percent, while the three-month CD rate rose only 0.02 percent, to 0.11 percent, in the period since the Fed began tightening, raising the Fed funds target rate by an overall 1 percent.

“Despite the 1 percent total increase in the Fed funds over the last 19 months, money market and short-term CD rates barely budged,” Pan writes. “Historically, these rates tended to rise with the Fed funds rate, sometimes exceeding the benchmark rate increases.”

Since the Great Recession, bank reserves have gone from just over $8 billion at the end of 2007 to a peak of $2.8 trillion in late 2014.

Currently, even as speculation swirls as to the timing of possible Fed divestment of these assets, bank reserves still stand at $2.2 trillion (as of June 30), abundant reserves that “provide sufficient liquidity, and this lessens the need for banks to pay higher rates on deposits,” Pan writes.

Analyst Chris McGratty of Keefe Bruyette & Woods agrees, but stresses that this is only part of the story. “To the extent that banks are brimming with liquidity, they can allow deposits to flow out,” he says.

At the same time, the lag in interest rates offered to depositors also reflects the timidity of the current round of tightening. “We haven’t had a tightening cycle since 2004, and a lot has changed in 13 to 14 years.”

McGratty and other bank industry analysts expect this situation to correct itself and restore incentives (and opportunities) for savings.

“Over the next couple of years, there will be a migration away from noninterest-bearing deposits,” Pan predicts."

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Makes perfect sense for the company that sold you the annuity. 😎

That's in the company's interest. Not yours.