Why big banks aren't interested in your savings account
2Digest
This podcast delves into the reasons behind big banks' reluctance to offer higher interest rates on savings accounts, despite the Federal Reserve raising rates. The episode reveals that banks are prioritizing corporate clients and offering them higher rates, while everyday savers are left with lower returns. The podcast explores the shift from "sleepy money" to "hot money" as depositors become more aware of higher interest rates and seek better returns. This shift is attributed to factors like the Fed's interest rate hikes and the collapse of Silicon Valley Bank. The episode also examines the strategies big banks are employing to retain everyday savers despite not offering higher interest rates on savings accounts, including incentives like one-time cash bonuses and building long-term relationships with customers. Finally, the podcast encourages listeners to shop around for better interest rates on their savings accounts, emphasizing the importance of considering factors beyond just the APY, such as the bank's interface and consistency.
Outlines
Big Banks and Savings Account Interest Rates
This episode explores why big banks aren't offering higher interest rates on savings accounts despite the Federal Reserve raising interest rates. It reveals that banks are prioritizing corporate clients and offering them higher rates, while everyday savers are left with lower returns.
Why Big Banks Aren't Interested in Paying You Interest
The episode delves into the reasons behind big banks' reluctance to offer higher interest rates on savings accounts. It highlights the importance of corporate accounts and the banks' focus on attracting and retaining these lucrative clients.
The Rise of "Hot Money" and Bank Strategies
The episode discusses the shift from "sleepy money" to "hot money" as depositors become more aware of higher interest rates and seek better returns. It explores the factors contributing to this shift, including the Fed's interest rate hikes and the collapse of Silicon Valley Bank. It also examines the strategies big banks are employing to retain everyday savers despite not offering higher interest rates on savings accounts.
Shopping Around for Better Rates
The episode encourages listeners to shop around for better interest rates on their savings accounts. It emphasizes the importance of considering factors beyond just the APY, such as the bank's interface and consistency.
Keywords
High Yield Savings Account
A type of savings account offered by banks and credit unions that pays a higher interest rate than traditional savings accounts. These accounts are often offered by online banks or credit unions, as they have lower overhead costs.
Annual Percentage Yield (APY)
The effective annual rate of return on an investment, taking into account the effect of compounding interest. It is a more accurate measure of the return on an investment than the simple interest rate.
Corporate Accounts
Bank accounts held by businesses, corporations, and other organizations. These accounts typically have higher balances than individual accounts and are often subject to different interest rates and fees.
Money Market Funds
Mutual funds that invest in short-term debt securities, such as U.S. Treasury bills and commercial paper. They are considered a safe and liquid investment option, and they often offer higher interest rates than traditional savings accounts.
Sleepy Money
Money that is deposited in a bank account and left untouched for a long period of time. This type of money is often considered \"sticky\" because depositors are not motivated to move it to other accounts, even if they could earn a higher return elsewhere.
Hot Money
Money that is actively moved between different accounts or investments in search of the highest possible return. This type of money is often considered \"volatile\" because it can quickly move out of an account if interest rates or other factors change.
Q&A
Why aren't big banks offering higher interest rates on savings accounts despite the Federal Reserve raising interest rates?
Big banks are prioritizing corporate clients and offering them higher rates to attract and retain their business. They are less focused on attracting everyday savers with higher interest rates on savings accounts.
What are some of the factors that have led to the shift from \"sleepy money\" to \"hot money\"?
The Fed's interest rate hikes, the collapse of Silicon Valley Bank, and improved technology that allows customers to easily manage their money online have all contributed to depositors becoming more aware of higher interest rates and seeking better returns.
What strategies are big banks using to retain everyday savers despite not offering higher interest rates on savings accounts?
Big banks are offering incentives like one-time cash bonuses and focusing on building long-term relationships with customers, hoping to encourage them to use other banking products and services.
What advice would you give to everyday savers looking for better interest rates on their savings accounts?
Shop around for better rates and consider factors beyond just the APY, such as the bank's interface and consistency. Don't be afraid to move your money to a different bank if you can find a better deal.
Show Notes
Related episodes:
The dangers of money market funds (Apple / Spotify)
Interest rates up, but not on your savings account (Apple / Spotify)
Bad Form, Wells Fargo
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