The banks cost of money isn't closely tied to the Fed rate. It is more tied to long term investments such as government bonds or t-bills. These have been pretty low and very low recently.
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
#72Why 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%.
But it does though ...
https://www.macrotrends.net/2526/sp-500-historical-annual-re...
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#73This 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…
Airline "fuel surcharge" ticket fees come to mind. As high fuel costs plummeted, the fees did not.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#74Why 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.
> or if that is too risky invest in a government bond.
You can get 1% in a savings account in the US. TBill rates are all less than 0.25%. The latter has tax benefits, but not enough.
One good way to "get a higher return" (for some at least) is to pay down debt. If your mortgage is at 3%, whatever you pay off is "earning" 2ish% after tax. If your margin loan is at 1.5%, anything you pay off earns 1.5% (because the interest isn't deductible.)
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#75The 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 interes…
Does that work reliably in the UK? Germany has similar a similar mandatory service, but the few people I know that switched banks using that service all ran into major trouble, like rent payments, insurance premiums etc not going through and the two banks pointing at each other "we don't know, it's those guys".
In the end, I believe the best course of actions would to simply make account numbers transferable. There's no good reason why I shouldn't be able to switch my bank and keep my account number etc just like I do with my mobile phone number and provider. Of course, Bank Codes being used makes this more difficult (thank you, regulation).
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#76Earlier quoted context omitted.
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 interes…
Does that work reliably in the UK? Germany has similar a similar mandatory service, but the few people I know that switched banks using that service all ran into major trouble, like rent payments, insurance premiums etc not going through and the two banks pointing at each other "we don't know, it's those guys". In the end, I believe the best course of actions would to simply make account numbers transferable. There's…
I've switched banks 4 times over the last few years to take advantage of different deals offering a few hundred pounds or so for join-ups. Never had an issue.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#77Same 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.
Suppliers for lots of things charge whatever people will pay regardless of current market conditions. From time to time I read about lobster surpluses, where prices for distributors plummet and they just can't get rid of them. But when I go to the supermarket the price hasn't budged even $1. The supermarket knows the average consumer isn't aware of the fluctuations in the wholesale lobster market and even if they are, who's going to change supermarkets just to save a few bucks on one item.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#78Why 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.
> or if that is too risky invest in a government bond. You can get 1% in a savings account in the US. TBill rates are all less than 0.25%. The latter has tax benefits, but not enough. One good way to "get a higher return" (for some at least) is to pay down debt. If your mortgage is at 3%, whatever you pay off is "earning" 2ish% after tax. If your margin loan is at 1.5%, anything you pay off earns 1.5% (because the in…
interests are not linear, also most credits and mortgages will have a commission when you pay down a percentage of it, at least in Europe
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#79The 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.
This is my route too. I have accounts at 4 institutions with various levels of service.
2 of them provide good rates on savings 1 is local and has ATMs and branches in my area 1 provides a fantastic online experience
Once you've verified accounts between banks, it's fairly painless to transfer between them (and usually free if you initiate the transfer from the bank that will receive the funds)
Works very well and gives me a lot of flexibility with basically no additional work. It takes all of 5 minutes once a month to configure deposits to hit the current winner on interest rates.
Re: Banks are slow to increase rates on savings accounts, but quick to reduce them
#80The 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 interes…
would be way easier if iban's would be interchargeable or some kind of iban proxy.