#### Well, well, well, look at what the cat dragged in…
Brace Yourselves, Saver Folks: Your Favourite Online Banks May Be Cutting the Cheese on Those Attractive Interest Rates
Oh boy, you’re not going to like this… but I guess it’s best to rip off the band-aid quickly, right?
In the grand theatre of savings accounts, some of your favorite leading roles are rumored to take a step back from their ticket-selling numbers. In layman terms? Online banks are looking like they’re about to cut back on the ooh-la-la interest rates we’ve been loving on for a couple of years now.
You see, a few years back, a bunch of financial big shots decided to draw folks in with alluring annual percentage yields (APYs). But, look around! The way the wind’s blowing economically, it’s getting harder for banks to keep stretching out such generous candies. Just as an example, recent wind whispers from Ally and Discover suggested a drop in their high-yield savings account rates to the tune of 4.25%. Not far behind is Marcus by Goldman Sachs, hinting at a trim on its high-yield savings accounts from 4.5% to 4.4%. A stunning turn of events as this is the first time Marcus is doing a limbo dance on its APYs since 2021.
I’m Just Saying Maybe…Lock in a Competitive CD Rate Before They Drop Further?
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Now, amidst all this rate rattling, a Marcus spokesperson tried putting down some sandbags by assuring us that they are still doing a pretty good job in the grand scheme of things. Their email to Money read something like, “We are still eight times higher than the national average and we’re definitely not taking our finger off the pulse. Marcus deposits and customer value are top items on our laundry list.”
What strikes me funny is how these banks seem to be jumping the gun, cutting back even before the Federal Reserve decides on the benchmark interest rates. Curious and curiouser, don’t you think? What could be causing this preemptive panic and what should us savers do?
Uh Oh, Could This Be The End Of The Road For High-Yield Era?
So, let’s rewind a bit, shall we? In the recent past, online savings accounts, Certificates of Deposit (CDs), and money market accounts went on soliciting spree with attractive APYs. Why, you ask? The grumpy cat on the block, the Federal Reserve, waved its interest rate wand quite a lot, attempting to scare off the inflation bogeyman. This made borrowing for commercial banks a costly affair, putting brakes on the economy and urging folks to morph from spendthrifts to penny pinchers.
Lo and behold, banks scrambled to lock in deposits and played the APY magnet card to draw in folks like us. The result? We got to bask in the glory of impressive APYs on high-yield savings accounts, swinging between 4% and 5% with a few even topping at 6%. Quite the jump compared to the sub-2% numbers in the past!
Here comes the twist, though. Just as we’d gotten cozy with the high numbers, inflation started letting out some cooling vibes. Last summer, the Federal Reserve hinted at a halt on rate hikes and doodled a probable first rate cut somewhere around late 2023 or early 2024. Lower rates by the Fed would mean less expensive borrowing for banks, and hence, less need for them to dangle high APY carrots.
Now, we haven’t seen the Fed making that final move yet, and inflation isn’t exactly ready to give up its spot in the sun. So, the “when” of it all is still a hushed secret. But, as savers, we’ve got our eyes and ears open, right?
Here’s something Clark Bellin, chief investment officer at Bellwether Wealth, added. Banks can change their APY tunes whenever they feel like it. He points at Marcus’s recent pullback not just as a reaction to current market fluctuations but likely a crystal ball peek into the Fed’s future moves. Don’t be surprised if other banks start rolling the same way by 2024.
Even if the Fed decides to push back the rate cut due to stubborn inflation, Bellin believes that banks will likely set scissors on the high-yield savings accounts in the next six to nine months, expecting the Fed to make a move.
Hey, It’s Not All Bad News, Especially If You’re into Fixed-Rate Savings Accounts
Dejected? Don’t be! Yes, we might see some APY reductions down the line, but remember, the yields on online savings accounts still make traditional brick-and-mortar banks look like they’re playing in the kiddie pool. Would you believe that the nationwide average APY for standard savings accounts is barely 0.47%?
Now notice the other kids in the playground. Banks have already started tip-toeing around rate cuts on savings products such as Certificates of Deposit (CDs). Farm your thoughts on this, Bryan Johnson of CDValet.com points out that in November 2023, Americans had a choice from about 3,900 CDs with rates over 5%. Fast-forward, and that choice has dwindled to a mere 3,000.
Even so, our man Bellin doesn’t think it’s all doom and gloom. CDs and other fixed-rate accounts are reliable havens for us savers wanting to freeze today’s rates. Unlike the high-yield savings, CDs stick to a fixed interest rate for the agreed-upon term, acting as a cushion against future rate tumbles.
On the other hand, high-yield savings APYs can do a mid-act costume change any time they want. You see, banks are like chess players, always strategizing based on market trends. So, us savers should be ready for a seesaw ride.
What If I’d Like a Steady-Eddie Savings Option?
If you like your savings as steady as a metronome, you might consider opening a Certificate of Deposit (CD). It’s old-school, but hey, it’s as sturdy as it gets. Dreaming of short-term goals? Discover®️ has a variety of CD accounts lined up. Get started while the iron’s still hot!
So, that’s the scoop for now, my savers-in-arms! But remember, this isn’t the end of the story. Always keep an ear to the ground and an eye on the horizon. Stay savvy!
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