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Banks are slow to increase rates on savings accounts, but quick to reduce them
21–30 of 180 posts
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#22Online 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.
Online only banks have fewer expenses (no branches or staff in them). This appears to translate into higher rates which is a selling point for them.
I think traditional banks, which apparently used to have much better rates even with all the expenses, have found that people are perfectly willing to give them their money practically for free. The newer online competeritors need something to draw in costumers.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#23From my limited experience, they're good at offering an enticing savings rate but a year or two later will whack it down close to nil. They're playing the same game as utilities and insurance, after a year or two your benefits shrink or your costs go up.
Examples, had a 2% interest rate "ISA"-like account and it went down to 0.01%. Home insurance doubles in 10 years through lack of changing it.
Switching all our services yearly is a time suck and they know it.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#24The problem is that most people don't want to change banks.
If changing your bank to get a better savings rate took 15 minutes and had no other consequences, banks would be updating their rates by the second to beat one another. But it doesn't. If your mortgage, credit cards, car loan, etc, are all with the same bank then switching your bank account only just to get 0.1% higher interest is a huge hassle for little benefit. Especially if you don't have much money sitting in a savings account- even with $5000 in your account, a 0.1% difference is $5/year.
So what banks are actually competing over is the people who happen to be shopping around for a new bank- something most people do only a handful of times in their life. Meanwhile, leaving rates low improves the banks bottom line. Short term vs long term tradeoffs.
In short: banks have little reason to raise savings account interest rates regardless of what their central bank gives them.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#25This 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…
I can never seem to find that "Invisible Hand" when I need it....
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#26Same with fuel prices. War in the middle East? Gas prices jump up overnight. Slump or excess? Consumer prices drop ridiculously slow. Middle men will always use any excuse to extract more from both sides.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#27Reminds me of gas stations, quick to jack up the prices, slow to reduce them.
If you hold inventory, it’s hard to resist unless market pressure forces different pricing.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#28The problem is that most people don't want to change banks. If changing your bank to get a better savings rate took 15 minutes and had no other consequences, banks would be updating their rates by the second to beat one another. But it doesn't. If your mortgage, credit cards, car loan, etc, are all with the same bank then switching your bank account only just to get 0.1% higher interest is a huge hassle for little be…
And your typical mortgage contract will include clauses that stop you from moving your mortgage to some other provider without penalty. You can get badly locked in like that with rates from a decade ago.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#29The problem is that most people don't want to change banks. If changing your bank to get a better savings rate took 15 minutes and had no other consequences, banks would be updating their rates by the second to beat one another. But it doesn't. If your mortgage, credit cards, car loan, etc, are all with the same bank then switching your bank account only just to get 0.1% higher interest is a huge hassle for little be…
In the UK this has got a lot better with banks being forced to offer an "account switching service", which makes it trivial to change your current (checking) account. Things like salaries, standing orders and direct debits (for utility bills etc.) are automatically transferred across. It doesn't work with savings accounts though as far as I know, so it doesn't help much with managing interest rates other than interest-paying current accounts.
As you say though, there are so many complicated conditions around getting paletry interest rates - only available on first £5k, or rates that reset to 0.1% after 12 months - that I'm not sure people would change much anyway.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#30This 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…
I heard this story / explanation before:
You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit.
Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill.
I don’t know how accurate that is to the real situation gas stations face but I’d never thought of it in terms of selling higher to afford the next bulk delivery.