5 smart-money tips on low savings rates
Why are savings yields so low?
The short answer is that the Federal Reserve has lowered bank interest rates to encourage banks to make more loans and thereby stimulate the U.S. economy. However, banks have not found many good lending opportunities, and since they can borrow so cheaply from the Fed, they consequently have no cause to offer higher rates to savers to attract more deposits, says David Rahn, president of First Foundation Bank in Irvine, Calif.
Depositors might see higher yields if the Fed reversed course and raised bank interest rates or banks loosened their lending standards to the point where they needed to attract more deposits to make more or bigger loans to corporations, small businesses, real estate developers and homeowners.
The near-term outlook for the Fed to raise rates is "bleak," Nager says. That means savers should be prepared for the pain of lower rates for some time to come, even though the expectations of many experts who agree with Nager's assessment may yet prove pessimistic.