After several years of increasing the meager interest they paid on savings accounts and certificates of deposit, banks are starting to trim their offerings to savers. The declines are slight, usually less than 0.25 of a percentage point, but the trend is certain to continue for at least the next six months to a year, experts say.
"There's a lot more economic certainty and thoughts of a potential economic slowdown, and that's been driving a lot of banks to cut back on what they're offering to customers," said
Some banks didn't wait for the Fed to cut rates. Earlier this summer Goldman Sachs cut Marcus' online savings rate to 2.15% from 2.25%, while competitor Ally cut its rate from 2.2% to 2.1%.
The average online-only bank now offers an interest rate of around 1.68%.
After the Great Recession, savers looking to safely store their cash and make a modest return had few, mostly terrible options. The
Banks didn't have to offer enticing rates because they largely didn't need deposits. Lending slowed considerably after the Great Recession, and new regulations kept banks from lending too dangerously, so the need for deposits to fuel that lending waned.
But as the economy recovered, however, and the Fed steadily raised interest rates from near-zero to 2.50% at its highest level, banks started offering more to savers. Banks also started offering more loans, which in turn meant the competition for deposits heated up.
But that competition for deposits is now dwindling and banks are not as willing to pay for long-term deposits as they used to. For example, six months ago an average bank was willing to pay 2.24% for a five-year CD. That's declined now to 2.16%. The decline is small, but expected to continue downward.
Savers looking for new places to lock-away money and get some sort of yield should check out no-penalty CDs offered by banks like Marcus, Tumin says. While the rate is not much higher than what a customer might get in an online-only savings account, no-penalty CDs allow a customer to lock in a rate for a year.
Lower interest rates have been good news for some, however. Big banks cut their so-called prime rate almost immediately after the Fed's July rate cut. That means lower interest costs for borrowers, as the prime rate is typically used to determine the interest rate on credit cards.
Mortgage rates have also declined, with the average 30-year fixed-rate mortgage now averaging around 3.81%, compared to 4.44% in March.