Question: Ben and Cindy in Taylor Mill: We recently realized that our bank lowered our interest rate on our savings account. Is there anything we can do about this?
A:Unfortunately, you – along with everyone else who has cash sitting in a savings account – are currently at the mercy of the Federal Reserve, our nation’s central bank.
A few months ago, when the COVID-19 crisis began, the Fed decided to lower the "federal funds rate" to basically zero. This is the interest rate that banks use when lending money to one another overnight. It also triggers the movement of other types of interest rates (think credit cards, mortgages and, yes, bank accounts). So, when the Fed lowers (or increases) its federal funds rate, other interest rates typically follow suit. That’s why your bank decided to lower your rate. And you likely won’t see a return to "normal" anytime soon – Fed Chairman Jerome Powell has said that rates will likely stay low for the foreseeable future, which, at this point, likely means through at least 2022.
In the meantime, there are a few things you can do. First, research any other offerings from your bank, such as a money market account. This type of account typically requires a bigger minimum deposit and has limits on the number of transactions you can make, but it sometimes offers a slightly higher interest rate than a savings account. Second, consider shopping around and switching institutions altogether. For instance, if you’re not already using an online bank, they generally offer higher interest rates than banks with brick-and-mortar locations. A community bank or credit union are also great alternatives as well.
Here’s the Simply Money Point: Right now, interest rates are very low for all types of interest-bearing accounts – not just savings accounts. That’s just the reality we all have to accept. But don’t forget, you can use this moment in time to your advantage as well. Consider refinancing a mortgage or paying down credit card debt.