Last week, the Federal Open Market Committee (FOMC) met and determined that the federal funds rate will remain as close to zero (0 – 0.25%) as it has ever been. The press release that the Federal Reserve release stated, “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
This decision will continue to affect the interest rates that banks and credit unions offer on savings accounts, interest-bearing checking accounts and certificates of deposit. Many financial institutions immediately drop their interest rates whenever the Federal Reserve announces an interest rate cut. Other institutions choose to “hold out” as long as possible and keep their interest rates higher than average in order to attract new customers.
Many of the banks, such as SmartyPig, that were holding out and trying to keep their interest rates higher than average are now relenting to market pressures and bringing the rates that they offer more in-line with what other firms are offering. Until this week, SmartyPig account holders were earning close to 3.0% on their money, but SmartyPig has recently dropped their interest rates to 2.01%, which is still competitive in today’s market.
We will likely continue to see interest rates flatten out in federally-insured checking and savings account as the Federal Reserve keeps the federal funds rate at record lows. Typically when interest rates are dramatically changing either upward or downward is when customers stand to benefit the most by switching banks to another financial institution that offers higher interest rates.
