NYT:$2.50 a Year in Interest? That's What $5,000 in Saving Gets

Published September, 2020

With the Federal Reserve keeping rates low, home buyers are benefiting. But savers? Their average interest rate is just 0.05 percent.

Historically low interest rates are a boon for home buyers.

But for savers? Not so much.

Low rates for borrowers typically also mean lower rates for savers. Because banks are earning less on loans, they typically pay out less on savings to make money.

The average rate paid by banks on basic, federally insured savings accounts — known as the annual percentage yield — was a mere 0.05 percent as of Monday, according to the Federal Deposit Insurance Corporation.

That means if you had $5,000 in a savings account, you would earn $2.50 a year on your money.

“It’s almost an insult,” said Cheryl Costa, a wealth manager outside Boston.

Nor should savers count on an improvement anytime soon. The Federal Reserve has signaled that it expects to keep interest rates near zero for the next couple of years, as it manages the economy through the pandemic and its aftermath.

“The Fed has signaled that these low rates are going to be here for a while,” said Jonathan Clarke, an associate professor of finance at Georgia Tech’s Scheller College of Business.

That’s good news for borrowers. Mortgage rates are at historic lows, dropping below 3 percent for both 30-year and 15-year fixed-rate home loans this month, according to Freddie Mac. Even interest rates on credit cards have fallen slightly, though they remain in the double digits since that debt isn’t secured by collateral, like a house. The average credit card rate is 16 percent, a four-year low, down from more than 17 percent a year ago, according to Bankrate.

But some Americans have accumulated cash reserves during the economic uncertainty of the pandemic. The personal savings rate spiked to a record 33 percent in April and was still almost 18 percent in July, double what it was throughout 2019, according to the federal Bureau of Economic Analysis. (The bureau defines personal savings as income left over after people spend and pay taxes.)

What’s a saver to do?

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