COVID-19

As bank account yields fall, deposits are on the rise

Justin Ho Nov 12, 2020
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People wait to use an ATM outside a Chase branch in New York City. Interest on savings has dropped since last year. Cindy Ord/Getty Images
COVID-19

As bank account yields fall, deposits are on the rise

Justin Ho Nov 12, 2020
Heard on:
People wait to use an ATM outside a Chase branch in New York City. Interest on savings has dropped since last year. Cindy Ord/Getty Images
HTML EMBED:
COPY

Savings accounts haven’t paid out much interest for years now, and during the pandemic, yields have fallen even further.

Bankrate.com said so-called “high yield” savings accounts went from paying out 2.5% last year on average to paying less than 1% today. But as low as interest rates are in this economy, people are stashing money away nonetheless.

Banks aren’t paying much interest to savers because they can’t charge much interest to borrowers. The Federal Reserve is keeping interest rates near zero, and mortgage rates are near record lows.

“We’ve had to drop our yields on savings rates significantly to adjust to the new normal,” said Peter Alden, CEO of Bay State Savings Bank in Massachusetts.

This year, the bank lowered rates by almost half a percent on average across its accounts.

“We brought down our money market rates, our savings account rates. CD rates same thing, we’ve had to cut those down as well,” he said.

Even so, Alden said bank deposits have been rising this year.

Greg McBride, chief financial analyst at Bankrate.com, said when the coronavirus pandemic started, people were worried about the economy and wanted to make sure their money was safe.

“People were worried more about the return of their money than the return on their money,” he said.

And those deposits have continued to grow. They’re now sitting at record highs.

Teresa Ghilarducci, professor of economics and policy analysis at the New School in New York, said today’s savers are likely higher-income households, people who kept their jobs during the pandemic and have fewer things to spend their money on.

“And they’re saving their money on not going on European vacations, going out to dinner or riding the train or taking their car in to work,” she said.

Even though interest rates are low, Ghilarducci said all those savings aren’t likely to leave people’s bank accounts anytime soon.

She said what’s more likely over time is “that money will go to more foreign goods and services, and it will be socked away in financial accounts.”

In the meantime, all those deposits are money that’s not flowing into the American economy.

COVID-19 Economy FAQs

What do vaccines mean for economic recovery?

COVID-19 is not going anywhere anytime soon, according to expert witnesses who testified at a recent hearing held by the Joint Economic Committee. Put simply, we can’t eradicate the virus because it infects other species, and there will also be folks who choose not to get the vaccine or don’t mount an immune response, according to Dr. Céline Gounder at NYU School of Medicine & Bellevue Hospital. “That means we can’t only rely on vaccination,” Gounder said. She said the four phases of recovering from the pandemic are ending the emergency, relaxing mitigation measures, getting to herd immunity and having long-term control.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

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