Higher interest rates mean rising borrowing costs for consumers. But they are finally able to earn some money on their savings in return.
The Federal Reserve has raised interest rates several times since March in its bid to fight high inflation and has signaled more increases are likely. Banks, in response, have gradually increased the rates they pay to consumers on products like certificates of deposit and savings accounts, which plunged early in the pandemic.
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The average annual percentage yield on a one-year CD reached 0.46% in August, according to the Federal Deposit Insurance Corp. That is up from 0.15% since March. Likewise, the average rate on savings accounts rose to 0.13%, up from 0.06% in March.
Online banks such as
Ally Financial Inc.
Capital One Financial Corp.
have been the early movers. They have raised CD rates, on average, by 0.43 percentage point and savings rates by 0.38 percentage point over the past month, analysts at
Goldman Sachs Group Inc.
said in a research note Monday. Goldman’s online bank, known as Marcus, recently offered 1.7% annually on its savings account, up from 0.5% in April.
Deposit growth at online banks has lagged behind that of traditional banks since the start of the pandemic, said
of financial research firm Curinos. Online banks tend to have large businesses in categories that have recently experienced high consumer demand for loans, like credit cards and auto loans. Raising deposit rates can help them keep up with peers.
While online banks are boosting rates, bigger players such as
JPMorgan Chase & Co.
Bank of America Corp.
have barely budged. Large banks are typically slow to increase those rates, because their extensive branch networks and large marketing budgets mean they usually have plenty of deposits on hand. Pandemic stimulus further drove up deposits at the biggest banks.
Slowly increasing deposit rates allows banks to pocket the difference between what they earn on loans and what they pay to customers.
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Still, the larger banks could boost their own rates in the months ahead because demand for loans is strong and further tightening is expected from the Fed, Goldman Sachs analyst
said. “The …….