What (generally speaking) affects savings interest rates?

superadvisor · #1 08-31-2007, 05:56 PM

Generally speaking, what has to happen in the world of finance to raise or lower the competitive interest rates that banks offer on savings accounts (HSBC offers 5.05% currently) to make it go up or down?

If there was a recession would that interest rate potentially go up due to the increasing demand for money? Were they lower a few years ago?

Uglyowl · #2 08-31-2007, 07:25 PM

Banks have two options to fund loans: Pay the consumer for deposits or borrow wholesale. They can borrow from Federal Home Loan Banks (wholesale) at the following rates:

http://www.fhlb.com/rates.html#Rates

The goal of banks in gathering deposits is getting a lower rate than wholesale. Very rarely you will find savings above the wholesale price. The wholesale price hovers around the target Fed Funds rate that is much discussed.

Also you can check some historical information on the site too.

Fishhead24 · #3 08-31-2007, 09:28 PM

So having said that, where are SAVINGS RATES going in the next 2-18 months?

superadvisor · #4 09-01-2007, 05:27 AM

[ QUOTE ]
So having said that, where are SAVINGS RATES going in the next 2-18 months?

[/ QUOTE ]

This was what I was hoping would be discussed. Has historical evidence showed savings rates to be dependent on the feds funds rate?

Ray Zee · #5 09-02-2007, 12:02 AM

savings rates where they are money market rates are tied to what the federal govt. pays for money.
\savings rates for bank accounts are generally so low because banks try to steal money from uninformed people.

Uglyowl · #6 09-02-2007, 01:35 AM

[ QUOTE ]
So having said that, where are SAVINGS RATES going in the next 2-18 months?

[/ QUOTE ]

High yield Money market rates move about 90% what the Fed Funds rate does, so I would expect rates to decline .50% to .75% over the next 6 months (based on market expectations).

Ray- On the other hands, anyone in a 1% account is not paying attention (or doesn't care) so banks don't bother to change the rate.

superadvisor · #7 09-02-2007, 04:56 AM

I thought I made it clear that I was getting 5.05% on my savings (non-money market) account [img]/images/graemlins/smile.gif[/img]

Fishhead24 · #8 09-02-2007, 07:53 AM

5.40 @ Countrywide......

Uglyowl · #9 09-02-2007, 09:58 AM

[ QUOTE ]
I thought I made it clear that I was getting 5.05% on my savings (non-money market) account [img]/images/graemlins/smile.gif[/img]

[/ QUOTE ]

At banks money market and savings accounts the only difference is money markets have a 6 withdrawal limit per month. Pretty much same thing, same reserve requirement, etc.

You may be getting 5.05% now (me too), but it will go down when the fed cuts rates.

For Countrywide, they have a higher rate due to liquidity/public perception issues. They have used up there line of credit, so that is no longer an option for them. I would think 5.40%+ is a teaser type rate where their rate gets closer to fed funds rate over time.