Why is it surprising? It applies to housing loans as well. Sometimes unless you threaten the banks that you will switch the bank they won’t reduce it interest rate.
Banks are slow to increase rates on savings accounts, but quick to reduce them
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Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#12The worse thing is that the opposite applies for floating credit (loan) rate. They're very quick to increase the rates but very very slow to reduce them. So it's like double profit for them.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#13But nobody is expecting to be earning a significant return from a retail bank account, are they? I think if you're disappointed by your checking-account interest rate you probably first need to think about why you're storing your money there.
There are a lot more people than you think that simply don't invest their money, instead they keep it in savings accounts. My aunt is one of those people. She got a large inheritance and basically kept it in a savings account for 20 years. My mom got the same inheritance and bought investment properties with it and now its worth 10x. I think it comes down to the fact that a lot of people are risk averse or feel that…
Even if you're risk averse, a limited time, guaranteed rate investment available in most banks will give you more than the checking account rate. (as long as you're happy to lock the money for 6+ months)
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#14Am curious how Compound, dX/dY, Nexo services are able to advertise such high interest rates on digital assets. Some as high as 10% APR accrued on a daily basis.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#15Online only banks offer great rates on savings accounts. The Fed has an influence but these rates are market driven. If you want high rates, look for them and put your money there. Many financial products are only available to the wealthy but in this case anyone can do this.
Savings account rates are terrible compared with alternative investments though, even cash-storage investments.
Could you give some examples, adjusting for risk?
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#16Same with gas prices
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#17Same goes for gas prices. I heard an earnings call recently for a public company that runs a ton of gas stations. They indicated that their margins on gasoline have gone far far up and offsetted and losses of sales of drink/snacks etc in their stores, because they are quick to raise gas prices when oil prices go up, but very slow to do so when prices go down.
The amount of fascinating economic lessons we've gotten over the past 6 months is amazing. All kinds of cool things I've learned:
Pool companies are backed up 1 year right now with people nesting at home
Whirlpool blew their analysts earnings estimates out of the water on strong appliance sales due to "nesting at home"
Weber grills are on huge back order.
and on and on.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#18This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to pass down all savings to customers? The same exact thing happens with gas stations. The price of gas never falls quite as fast or far for the consumer as it does for the retailer, but gas stations will instantly respond to price increases. I’m sure there are…
Most companies I ever worked for did the same, in particular the ones in the oil&gas sector. Any increase in crude or taxes would immediately be passed down to the consumer. Any decrease and they'd be issuing a press release stating that "the markets don't respond so quickly to price fluctuations".
It works best in industries with no real competition because of the high barrier of entry, and with a common interest between the players to keep the practice going, even when there's no explicit collusion or cartel forming.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#19I am happy to be contradicted by better specialists than me of US banks. But aren’t the vast majority of loans in the US fixed rate with no or little prepayment penalties? If that’s the case the interest rate risk of these banks is not trivial and certainly not a simple pass-through of overnight rates.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#20But nobody is expecting to be earning a significant return from a retail bank account, are they? I think if you're disappointed by your checking-account interest rate you probably first need to think about why you're storing your money there.
But I think the opposite is also true for mortgages. So it's relevant for many people.
At least where I live, they increased the mortgage rate quickly when the government increased the rate, but I still haven't seen much of the decrease. Only way to get it is to threaten to switch or actually switch bank. A passive mortgage lender is getting ripped off.