This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Waiting For Higher Deposit Rates? Don't Hold Your Breath

Is the era of low interest rates over? It depends on which interest rates you're talking about.

Mortgage rates, for example, have been very much on the move. According to data from Freddie Mac on 30-year mortgage rates, from early May to early August these rates rose by more than a full percentage point.

In contrast, savings account rates have been stuck in the mud. The FDIC reports that as of early August, the average interest rate on savings accounts was about where it was in early May.

The contrast between rising mortgage rates and stagnant savings account rates is bound to be another frustration for deposit customers. Here's why savings account rates have been slower to move, along with suggestions on what you can do about it.

Why savings accounts have been slow to change

The difference between the actions of mortgage rates and savings account rates is rooted in some market realities:

  1. Interest on savings accounts is a cost; interest on mortgages is revenue. Banks set rates on products partly in response to the marketplace, and partly based on their own profit motives. Looking at it from the bank's point of view, which would you raise first: savings account rates that cost you money, or mortgage rates that make you money? Think about how prices at the gas pump are quick to rise when oil prices go up, but are much stickier on the way down. A similar dynamic is at work with bank rates.
  2. Savings accounts are short-term; mortgages are long-term. Long-term rates are generally quicker to react to marketplace changes because they have to anticipate the future. This helps explain why on-demand account rates haven't moved, while 30-year mortgage rates have.
  3. Banks have little incentive to attract deposits. When lending business is slow, banks have less need for deposits to help fund their lending activities. That's why deposit rates may not rise until the economy picks up.

What you can do about it

As frustrating as low savings account rates may be, don't grind your teeth over it. Instead, here are three things you can do to try to move rates a little bit in your favor:

  1. Actively compare rates. There are already large differences between rates at different banks, and these differences may widen once rates start to move.
  2. Look at online banks. On average, online banks have consistently offered higher rates than traditional banks.
  3. Look into CDs with mild early withdrawal penalties. It may be time to get creative. For example, earning higher rates on long-term CDs by finding ones with relatively mild early withdrawal penalties might allow you to come out ahead even if you decide to take the penalty after a year or so.

Deposit accounts may be slow to react to the rise in interest rates, but that doesn't mean you have to be slow to take your own initiatives.


Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs