COVID-19

As bank account yields fall, deposits are on the rise

Justin Ho Nov 12, 2020
Heard on: Marketplace
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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
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

Are states ready to roll out COVID-19 vaccines?

Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.

How is the service industry dealing with the return of coronavirus restrictions?

Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.

How are hospitals handling the nationwide surge in COVID-19 cases?

As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.

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