Do you get a little pissed when the high yield savings account rates go down the minute you sign up? I do.
It’s no secret that institutions are dropping interest rates like fighter jets in World War II, but for what reason? Sure, everyone talks about the record low federal reserve funds rates but despite the rate staying steady for many months now, the interest rate on our accounts still keeps going down.
Being the curious David that I am, I went around and asked a few people within the industry and what they told me is so simple and made so much sense.
The high yield savings account rates are decreasing because they don’t need your money anymore. Here’s just a few reasons why.
- FDIC Coverage – The government increased the insurance coverage from $100,000 to $250,000. This guarantee entices the average Joe to put more money into banks, as opposed to other investments.
- Economic Environment – The stock market is on fire and economists everywhere are claiming that we are well on our way to recovery, yet real Americans are still in a recession. In any bad economic environment, everyone usually keeps more money in safe investments like an high yield savings account.
- Lending – The reason why any institutions want your money is because they can lend it out at a higher rate and pocket the difference. Nowadays, the financial community is finally realizing that bad loans can become a problem, so lending standards have tightened and hence there’s less of a need for deposits.
How to Predict High Yield Savings Account Rates
This all make sense, but it doesn’t help one bit if we can’t tell which institution is going to offer higher yields in the future. So, I did some thinking, and here’s what I came up with.
In order to predict which high yield savings account will give the best rate going forward, all we need to do is figure out how much lending they will need.
Now, I know some of you are thinking that this is a bit over the top and too difficult, but it’s not that hard with a bit of logic. Here are a few examples.
Most of this bank’s funding is for GMAC, who in turn lend to customers who want a Chrysler and General Motors vehicle. During the GM bankruptcy, rates have been dropping like a rock. Since cash for clunkers and demand picking back up a little, rates have edged up. Coincidence? Probably not.
This bank is based in Jacksonville FL, so it is only natural that a large portion of their customer base is in Florida. Therefore, lending will be somewhat tied to the local economy of the state. During the past six months, the economy hasn’t really picked up, so the rates have been steady.
This used to offer very high rates, but their interest rate is one of the lowest in the industry. Want to know why? Since a year ago, they exited the mortgage industry and the institution still does not directly lend to customers. Don’t expect the rates to go up anytime soon either.
Bank of America
Want to know why your traditional bank never offers any enticing interest rates? The answer lies in the fact that they have so much deposits already. Bank of America has the largest deposit base in the whole industry. Is it a fluke that they are also the largest consumer lender? Chances are good that their rates will never be high enough to compete with the high yield savings accounts.
Click Here… Never mind. If you really want to sign up for an account with a traditional bank, the best perks are offered to those who talk to a banker. So if you want a Bank of America account, head down to the branch and let them take your money.
A Little Thinking About the High Yield Savings Account Goes a Long Way
Next time you open a high yield savings account, take a quick look at their business model and you will easily figure out which institution will give you the best rates going forward.