Record Amounts in Savings Accounts Aren't Earning Anything
According to the Federal Deposit Insurance Corp., the average savings account rate is only 0.05 percent, with many yielding less. Rates fell drastically after the Federal Reserve cut its benchmark interest rate to around zero in the attempt to curb the economic fallout from COVID-19. The Fed does not directly influence savings rates, but they are typically correlated to changes in the federal funds rate.
Deposits have surged during the pandemic which also enabled banks to move rates even lower. In April, the personal savings rate reached 33 percent. With businesses starting to reopen and Americans starting to go out again, that number has fallen but still remains high. Now, according to the latest data from the U.S. Bureau of Economic Analysis, the savings rate is now 13 percent. This figure is higher than it has been in four decades.
“Even at rock-bottom interest rates, banks have been inundated with deposits just as loan demand dropped off,” said Greg McBride, chief financial analyst at Bankrate.com. He believes rates will stay low until the economy begins to recover. “If loan demand starts to accelerate, that could be a catalyst for some higher rates, but we have to get there first,” he added.