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Banks are slow to increase rates on savings accounts, but quick to reduce them

jpkoning.blogspot.com

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Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#61

Post by comicjk »

uxp100 wrote: post #32
jacquesm wrote: post #26

Same 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.

I guess that’s true in most cases, a lot of people seem to be saying it, but a few months ago we had gas cheaper than $1 per gallon quite suddenly.

This makes sense when you think about the inelastic demand for gas and the physical problem of storing it. The availability of storage makes gas prices change slowly most of the time. But, if there's a chance of the tanks running dry, prices go sharply up. And if there's a chance of the tanks running out of space, prices go sharply down.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#62

Post by learnstats2 »

save_ferris wrote: post #2

This 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…

Doesn't this just prove that there is not a competitive market in these industries?

If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch.

The fact that prices are quick to rise but slow to fall is dependent on consumer apathy and monopolistic behaviour/collusion.

It might be typical market behaviour, but it's not the perfect market that economists commonly base their models on.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#63

Post by teeray »

amiga_500 wrote: post #53
mabbo wrote: post #24

The 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…

We should each have our own account number that is ours. This could be registered with the state, when born. It would contain a pointer to a private bank account. Banks would have to implement a one day transfer to flip the pointer.

And while we’re at it, we can strip the account number of its powers as a payment / deposit authorization. It supremely sucks that once someone has it and your routing number, it can never be rescinded without changing account numbers (i.e. closing and reopening the account, re-establishing direct debits / deposits, etc.)

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#64

Post by salawat »

amiga_500 wrote: post #53
mabbo wrote: post #24

The 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…

We should each have our own account number that is ours. This could be registered with the state, when born. It would contain a pointer to a private bank account. Banks would have to implement a one day transfer to flip the pointer.

Who is maintaining the ledger exactly? On what terms? Who has access to that account? What controls are they entitled to place on it? Is it maintained by the government?

If yes, then you have a whole new set of problems. Now you have all your funds in one basket. (Remember, you've implemented the indirection mechanism, so it doesn't matter which bank you do business with, it's this weird government one all the time).

Politically, I don't see it happening. Or if it does, it"'ll completely change the color of the financial sector most likely, as most regular people stick with this weird government account, but anyone more financially entrenched (or who have trust issues, and do not desire to let the G-man sit on their financial transaction history) flee to more "discrete" financial institutions.

Fintech is one of those that rarely makes anything fundamentally "better"; just more expensive with more opportunities for fee extraction, and the capability to exploit those economies of scale like nobodies business.

Maybe it is the way to go for a government maintained version. Might make the IRS's job that much easier. Maybe they can get away from only going after the small fry and actually concentrating on nailing down more complicated forms of tax evasion.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#65

Post by fallingfrog »

I think a lot of the issue is that the model of banking has changed. Once upon a time, the business model was that the customer deposits savings, then the bank loans out that money, and the interest they collect is the profit.

But with unlimited free money from the fed, why bother? The fact is that they don’t actually want your money any more. It’s just a hassle to keep track of. They get a lot more money by charging overdraft fees than by loaning your money out anyway. So why should they be eager to compete for savings deposits?

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#66

Post by latortuga »

mabbo wrote: post #24

The 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…

This is true, but there's nothing that prevents you from having a second bank for savings only. This is what I've always done, open a savings account at whatever bank has the best rates, typically an online-only bank. Savings is useful for liquidity in an emergency and I'd be crazy to not try to get a few points on it in exchange for a few clicks.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#67

Post by aronpye »

Why would you ever have a savings account? They’re pointless as they always earn little interest. Much better to invest in an ETF that tracks something like the S&P500 with an average year on year growth of 10%, or if that is too risky invest in a government bond.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#68

Post by Aunche »

zdkl wrote: post #15
garmaine wrote: post #7

Earlier quoted context omitted.

Savings account rates are terrible compared with alternative investments though, even cash-storage investments.

Could you give some examples, adjusting for risk?

No penalty CDs are strictly better than savings accounts. I was able to lock my emergency savings into a 1.6% CD the day the Fed announced rates cuts.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#69

Post by wolco »

aronpye wrote: post #67

Why would you ever have a savings account? They’re pointless as they always earn little interest. Much better to invest in an ETF that tracks something like the S&P500 with an average year on year growth of 10%, or if that is too risky invest in a government bond.

I invest in ETFs this 10% yearly grow doesn't happen over a longer term and some years are negative. Overall expect 5%.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#70

Post by wolco »

comicjk wrote: post #61
uxp100 wrote: post #32

Earlier quoted context omitted.

I guess that’s true in most cases, a lot of people seem to be saying it, but a few months ago we had gas cheaper than $1 per gallon quite suddenly.

This makes sense when you think about the inelastic demand for gas and the physical problem of storing it. The availability of storage makes gas prices change slowly most of the time. But, if there's a chance of the tanks running dry, prices go sharply up. And if there's a chance of the tanks running out of space, prices go sharply down.

In those cases they shouldn't go up immediately only during refilling an order.
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