US interest rates and inflation are on the rise again, which means Americans can expect to pay higher rates for mortgages, auto loans, and credit cards. But don’t expect it to lead to higher interest on your savings account anytime soon.
Banks don’t want your money. That’s why they’re offering such low rates.
Today, the average US savings account pays 0.06 percent interest annually. Put another way, in one year a saver will earn just $6 in interest on $10,000 in deposits. Even many of the top online “high-yield savings accounts” in the US pay a negligible 0.5 percent interest annually. And the average one-year certificate of deposit (CD), typically one of the highest-yielding savings vehicles, pays 0.15 percent.
While savings accounts and CD yields are at historic lows, inflation this year is expected to increase at the fastest pace since 1991, eroding consumers’ purchasing power and reducing the value of their dollars. Normally, high inflation leads to higher interest rates that translate to higher rates on savings accounts as banks seek out deposits. But that’s not the case in 2021.
In July, Americans who put their money in savings accounts were hit with the most negative real average savings rate in US history: -5.34 percent.
At that rate, $10,000 deposited in a savings account would be worth only $9,460 in equivalent dollars at the end of a one-year period
At that rate, $10,000 deposited in a savings account would be worth only $9,460 in equivalent dollars at the end of a one-year period. In essence, the saver loses $540 in buying power to earn $6 in interest.
Yet, Americans are pouring money into savings accounts at a …….