Why savings interest rates aren’t rising like loan interest rates – InsuranceNewsNet


Rising interest rates have been a hot topic over the past year, as Federal Free Market Committee (FOMC) raises interest rates to Federal Reserve system, the central bank of United States. Many business owners wonder what rising interest rates mean for their business in terms of loan interest rates and savings and wonder why increases in loan interest rates don’t not reflect increases in savings rates.

Jon Stewartretail team leader, Coastal Community Bank, said he speaks to clients daily about their questions about interest rate increases. “Clients often ask why savings interest rates do not increase in the same way as lending rates, and how the increase in the federal funds rate (federal funds) affects interest rates for home loans,” he said. “I’ve been in banking for a long time, and it’s understandable that even the most knowledgeable would ask questions like these, because historically interest rates have acted differently.”

Why aren’t savings rates rising as much as loan rates?

Stewart explained that generally, as the Federal Reserve moves the federal fund up and down, financial products that are variable and tied to some kind of agreement or contract are also likely to move right away. For example, variable rate loans and certificates of deposit are linked to a particular index such as the federal funds or the prime rate, and their rates move accordingly.

However, Stewart explained that when it comes to raising or lowering other deposit rates, it depends on the individual bank and how it manages its balance sheet (loans and deposits) and the type of loans. that she offers. Banks that offer consumer loans at higher interest rates may be more willing to pay more on savings accounts because the increased cost of that higher savings account is offset by interest on the loan.

Why do some financial institutions offer special interest rates for savings accounts and others do not?

Stewart said customers ask him why they see CD promotions and special interest rates at some financial institutions while others don’t offer those promotions. “Some financial institutions will offer a much higher rate of return in the short term to attract new customers,” he said. “Other banks may raise their rates to stay competitive. As banks offer these rates, they will need to find ways to offset the increased cost of paying that higher interest rate. When the The Fed lowers the rate, which it will eventually do, it will still have to pay the same high rate on those accounts.”

“It’s different now than it was in the past for a number of reasons,” Stewart said. “Savings rates have not increased at the same rate. In the past, banks have raised interest rates on savings accounts to help encourage people to keep their money in the savings account. a bank, i.e. a money market, certificate of deposit (CD), or savings account, so that the bank can use the money to lend. The difference now is that banks have more deposits than in the past and do not necessarily need more deposits to lend. Raising savings account rates is not as necessary as in the past.”

What is the impact of the federal funds rate on mortgage rates?

“This is where it gets confusing and complicated,” Stewart said. “The federal funds rate is just one of multiple factors in mortgage interest rates and influences short-term, variable-rate mortgages that revalue more frequently.” He further explained that longer-term fixed-rate mortgages tend to be influenced more by 10-year cash flow, the yield curve and longer-term inflation expectations.

Stewart said every business and financial institution has different goals and needs, and increasing and decreasing rates can have an impact. He encourages companies to speak to their banker about any questions regarding the rate environment and how they can work with them to help them plan in the current economic climate.

Jon Stewart is Vice President, Retail Team Leader at Coastal Community Bank. For more information, contact a banker at one of Coastal’s 14 local branches. www.coastalbank.com Member FDIC. Equal Housing Lender.

– Sponsored by Coastal Community Bank


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