Why Bank Interest Rates are so Low on Savings Accounts

The national savings account interest rate is 0.91 percent according to money-rates. So why, are these so low compared to the four or even five percents in the early 2000s? There are many factors to this decline, including a bad economy and a bad housing market. The good news is as both the economy and house market rise, interest rates on savings accounts should raise as well.

Banks have the power to pay more interest on savings account, but at the moment it is just bad business. The economy has been bad lately, and people have been putting money into banks instead of spending it. Banks don’t have to fight to get money in their vaults, and people deal with the low interest rates. People must realize that banks are businesses too, and businesses have to make money. Banks get money by charging interests on loans that they give out, and they use their customer’s money to give out loans. As a thank you for letting them use their customer’s money, they pay interest rates on accounts. Banks need money to give out loans, but because of the bad economy people have been spending less and saving more, so banks don’t need high interest rates to bring money in.

However, once the nation is sure of the economy’s recovery, this will most likely change. People will likely start investing in the stock market, if it has been improving. People will start taking money out of their savings to spend more, and more and more people will want to take out loans. Since more and more people are taking money out of the banks to spend, the banks will have to think of a way to make people want to save their money. Raising interest rates on savings accounts will cause many people to put their money back into the banks, allowing the banks to make the loans they need to be successful businesses.

So, yes, savings account interest rates are extremely low right now, which is very frustrating. But as the economy improves, banks will have to raise their interest rates on accounts in order to stay competitive, which is great news for all those big time savers out there. The better news is that all signs show the economy is making a turn around, (hopefully in the very near future) and with that economic turnaround, hopefully savings account interest rates will improve.