Why are Savings Account Rates Generally Low?

If your savings account rates are getting you down, you may be wondering when they will rise again – and why in the world they’re lowering in the first place. Unfortunately, the rough economic times of recent months are mainly the culprit. However, this doesn’t tell the whole story about why low interest rates have claimed out savings accounts.


What’s Going On?

As you know, in order to save banks from shutting down entirely, the Federal Reserve bailed them out financially with tax funds. This means, technically the banks are supposed to have money available to cover their loss so that they don’t have to pass any financial burden down to those with savings accounts.

However, it hasn’t exactly turned out this way. Despite being distributed emergency funds, low interest rates have still made their way into our savings. The reason that some experts give for the decrease is the banks’ attempts to conserve their capital and invest more conservatively. Also, they’re following the lead of the Federal Reserve, which has lowered its target rate. Basically, everyone’s making attempts to play it safe. Who’s to say you can actually blame them after struggling for many months?

What Can We Do?

If you’ve found that in the past year, the savings account rates in your savings account had a rate of 3% and now it’s dropped to 0.05%, you’re probably pretty frustrated. This means, the returns you gained on your balance are now much lower.

Unfortunately, if you’re sticking with the same bank, there may not be too much you can do to change this situation until rates as a whole elevate. However, it doesn’t hurt to ask the bank if there’s a way to raise your rate. Also, you can consider looking to a local credit union or online bank, both of which offer rates that may be up to 2 percentage points higher than standard banks’ low interest rates.

Until the economy completes its path to recovery, we may continue to see low interest rates. However, if you check your local credit union, as well as online banks, you may discover new ways to bring higher returns on your savings accounts.