Are Your Savings Rates Crashing? A Few Actions to Stay on Track

• Author: Jeffrey Simmons
• Posted: 2024-09-09

Unfortunately, "high-yield" savings accounts don't produce nearly the annual yield that they used to. While traditional banks have been offering quite low interest rates for awhile now, if any at all, online-only banks that specialize in high-yield savings typically used to offer anywhere from 2.0% to 3.0% back per year.

While that may not sound like much, remember that your APY does compound. If you had $5,000 in a bank account and 3% APY, interest before compounding would be $150; after that, it would be to the tune of around $300! Of course, this was all before COVID hit.

Why Is My APY So Low?

Very close to the time that the COVID-19 pandemic was declared a national public health emergency in the US, the Federal Reserve announced that they were cutting banks' interest rates to 0% for "the foreseeable future". This means that banks would pay close to nothing to borrow money from central banking institutions that is typically then loaned to individuals.

While this slash may sound like they had the perfect opportunity to raise your rates, it was actually a last-ditch effort to keep banks in business. They make slightly more off loans, but major loan types like mortgages are at historically low rates. This is because lenders often require a lengthy job history, and many were furloughed or lost jobs during the pandemic. People are also growing more uncertain about their future prospects and have become much more financially conservative.

Because banks' profit margins were slashed, high-yield savings' APYs were also slashed. In particular, those with very high-balance high-yield savings accounts will notice the biggest cut. This is because banks make less money as discussed and because they likely can no longer loan out all of the money that is in those high-balance accounts.

So How Can I Preserve My Income?

It's crucial for you to take proactive steps to make up for lost yearly revenue from your personal savings, especially if you've lost income due to the COVID-19 pandemic. You can easily make the same amount or more from banks, but you'll need to change your tactics a bit.

The old recommendation was to simply use Certificates of Deposits, also known as CDs. However, these often now yield close to nothing, as well. Almost every major national and regional bank is offering new customer account opening bonuses. While we won't list any specific banks here because we do not sponsor any particular financial institution, they're quite easy to find online.

Your typical offer will be that if you have a number of direct deposits that add up to a certain amount in a period of time (usually 60-90 days), you will then receive a bonus of a few hundred dollars. Unlike credit card accounts, checking and savings accounts do not require a "hard inquiry". This means that your credit score will not adversely be affected by opening multiple accounts at different banks. Be advised, though, that banks do look for people they deem to be "gaming" their system and then effectively blacklist those people from opening new accounts.

The Takeaway

In short, the old ways of "money making money" have disappeared as banks increasingly have been looking for influxes of customers and "new money" to save their businesses. This "new money" can be in the form of direct deposits or sometimes even in a simple wire or ACH transfer from your old bank to your new one.

In order to avoid being blacklisted for "gaming" all of these new checking and savings account offers, you should first calculate the interest you earned last year from savings accounts and CDs. Once you know this approximate amount, seek out a few offers that will give you income to add up to what you'd earned before. Otherwise, you may be un for a surprise when the holiday season goes into full swing, as many don't realize just how significant their interest income is.

Unfortunately for consumers, the Federal Reserve has said that the earliest that rates could return to close to normal is in 2022. On the flipside, this gives consumers even more time to leverage the great, unique account opening bonuses over the next few years to earn possibly even more annual income from their checking and savings than they did before! Best of luck as you venture to recoup your lost income!