The problem is that most people don't want to change banks.
If changing your bank to get a better savings rate took 15 minutes and had no other consequences, banks would be updating their rates by the second to beat one another. But it doesn't. If your mortgage, credit cards, car loan, etc, are all with the same bank then switching your bank account only just to get 0.1% higher interest is a huge hassle for little benefit. Especially if you don't have much money sitting in a savings account- even with $5000 in your account, a 0.1% difference is $5/year.
So what banks are actually competing over is the people who happen to be shopping around for a new bank- something most people do only a handful of times in their life. Meanwhile, leaving rates low improves the banks bottom line. Short term vs long term tradeoffs.
In short: banks have little reason to raise savings account interest rates regardless of what their central bank gives them.
In the UK this has got a lot better with banks being forced to offer an "account switching service", which makes it trivial to change your current (checking) account. Things like salaries, standing orders and direct debits (for utility bills etc.) are automatically transferred across. It doesn't work with savings accounts though as far as I know, so it doesn't help much with managing interest rates other than interest-paying current accounts.
As you say though, there are so many complicated conditions around getting paletry interest rates - only available on first £5k, or rates that reset to 0.1% after 12 months - that I'm not sure people would change much anyway.
But it's also not a problem for savings accounts in the first place? Other than if you have a standing order(s) paying in I suppose, but that's probably only one, and unlike direct debits etc. all in your control and less hassle to move.
It's certainly less of a problem. But people are notoriously lazy, and a service where you could switch savings accounts in the same way as a current account would make it more likely. It's the cost / benefit trade-off, so if differences in interest rates are very small you need to make it even easier for people to switch.
For example, I'm being paid 0.3% on a current-acount-linked savings account. If I could switch that to NS&I (1%) more simply than I can currently, I would. But given the relatively low amount in the account, and how much I feel my time is worth, it just doesn't feel worth it to me. Yeah, I'm lazy. But so are lots of other people, and it would change the dynamics of the savings account market if it was easy enough to make me want to switch.
Does that work reliably in the UK? Germany has similar a similar mandatory service, but the few people I know that switched banks using that service all ran into major trouble, like rent payments, insurance premiums etc not going through and the two banks pointing at each other "we don't know, it's those guys".
In the end, I believe the best course of actions would to simply make account numbers transferable. There's no good reason why I shouldn't be able to switch my bank and keep my account number etc just like I do with my mobile phone number and provider. Of course, Bank Codes being used makes this more difficult (thank you, regulation).
I've switched banks 4 times over the last few years to take advantage of different deals offering a few hundred pounds or so for join-ups. Never had an issue.
Yes, it works reliably and comes with a guarantee that "If anything goes wrong with the switch, as soon as we are told, we will refund any interest (paid or lost) and charges made on either your old or new current accounts as a result of this failure."
Opening a online, high-yield savings account takes much less than 15 minutes. Many of these banks dont even offer checking accounts, so you couldn't switch everything else over even if you wanted to.
Many people in the US have no problem opening and using multiple credit cards, so having multiple bank accounts shouldn't be too difficult.
It has the benefit of working anywhere, without switching banks, and the time to liquidate and get it back into your checking account will be 2 days, similar to moving money between institutions. The benefit being the entire transaction happens within the purview and responsibility of one customer service organization.
It's not quite cash and interest, but in effect its going to be basically the same thing.
You don't earn interest on your money while it's in transit (seems to be around 1-2 days). If you're constantly shuffling money around, it might not make sense unless the rates are significantly higher. You'd have to do the math. Here's a calculator I found: https://www.mymoneyblog.com/the-ultimate-interest-rate-chase...
This is true, but there's nothing that prevents you from having a second bank for savings only. This is what I've always done, open a savings account at whatever bank has the best rates, typically an online-only bank. Savings is useful for liquidity in an emergency and I'd be crazy to not try to get a few points on it in exchange for a few clicks.
Try an American Express savings account. Usually the same rate as Ally, but allows much higher transfer limits. And you don’t have to have an AmEx credit card to open one. It’s my go to “middle man” account between ones that have ridiculously low transfer limits. I don’t know why these limits aren’t set as a percentage of the account balance at least. If it’s for reducing fraud, then how about implementing proper two-factor auth for logins as well as transactions over some threshold. The banking system in the US is such an embarrassment in many ways.
I left Capital One Savings (formerly Ing) because their 2FA required me to own a mobile phone registered in my name. I even sent them serious articles on the relative risk of 2FA using SMS vs email. Completely ridiculous. I had the accounts for about 15 years, and pulled out everything and pushed it to Marcus.
> Only real friction is I can only move $10k at a time every N (4?) days.
The amount of bullshit that you Americans put up with in banking on a daily basis is mindboggling for me as an European. A bank that couldn't give me all my funds in one day would never see my business again and yield themselves a complaint at the regulatory agency.
Your first sentence is 110% correct (as an Anglo-American). It is embarrassing for me to see the ease (and speed) with which my brother & stepfather (UK banking) move money around.
The second sentence is not 100% correct, though. The limit is not on accessing your funds in general, but specifically on using the ACH to move funds to a different institution. In practice, of course, in an era of online banking, it's almost the same thing - I mean, what else were you going to do with all your funds anyway?
Are transfers that take like a day or two that inconveniencing cause instantaneous transfers would only benefit me in getting a tiny bit more interest for that extra day or two i could get interest on it? With how low interest rates are these days, that basically makes it useless for me.
If your money goes to the wrong routing or account number, can they fix that (literally happened to me where money got sent to the wrong routing number and I went to a chase branch and explained what happened and they fixed it)?
What other bullshit do you perceive we have? Granted, I only use my bank for my automatic income direct deposits, my auto loan which automatically gets pulled from my checking account, automatically paying my rent, automatically paying off all of my credit cards in full, and very occasionally using an atm to pull money out of my checking account. That's it and i literally don't use a bank for anything else which could explain some of the disparity as I've read you guys actually use your bank more often as you guys use cash and debit cards a lot more. I check it just a few times a month to see what the balance is and then occasionally siphon off any income surpluses to vanguard who holds all of my savings and investments and they are awesome.
> Are transfers that take like a day or two that inconveniencing cause instantaneous transfers would only benefit me in getting a tiny bit more interest for that extra day or two i could get interest on it?
Waiting in the case of a reasonable savings fund of 100k for way over a month (10k every 4 days in the example I replied to) to be transferred sucks.
> With how low interest rates are these days, that basically makes it useless for me.
It's not about the interest rates, rather a "peace of mind" thing. I am used to clicking a button in online banking and know that the recipient will have the money, and all of it, in maximum 2 banking days and I don't have to spend mental energy on tracking it, worrying about a physical check being held up or lost in postal service, the recipient taking his sweet time to cash the check...
> If your money goes to the wrong routing or account number, can they fix that (literally happened to me where money got sent to the wrong routing number and I went to a chase branch and explained what happened and they fixed it)?
IBAN prevents this by having a two-digit checksum, that catches 99% of typos, number swaps and other entry errors. If you still manage to mess up, you have a ten day window for a recall. Direct debits can be reversed for eight weeks.
> What other bullshit do you perceive we have?
Still using physical checks with all their downsides. Direct debit being insecure to the point that someone getting your account data (or card swipe) can raid your bank account with the money being tied up for weeks (SEPA direct debit reversal is instantaneous and fully returns the funds). CC "rewards" cost being placed on the merchants (thus raising the CC costs for all customers) instead of being capped like in the EU. Did I already mention physical checks?
> Waiting in the case of a reasonable savings fund of 100k for way over a month (10k every 4 days in the example I replied to) to be transferred sucks.
That 10k limit is for one shitty company. I don't have those limits because I don't use a shitty company. Does europe not have shitty companies? Different class of shitty, but weren't people unable to access their funds in wirecard because it essentially imploded due to fraud?
> It's not about the interest rates, rather a "peace of mind" thing. I am used to clicking a button in online banking and know that the recipient will have the money, and all of it, in maximum 2 banking days and I don't have to spend mental energy on tracking it, worrying about a physical check being held up or lost in postal service, the recipient taking his sweet time to cash the check...
Maybe other people are different, but I've never experienced a lack of "peace of mind" with any transfer. Every transfer I have done is instantaneous in that both the sending account and receiving account acknowledge the transfer and just put it in a pending status for a day and no transfer I have ever done has failed so whats the big deal?
> IBAN prevents this by having a two-digit checksum, that catches 99% of typos, number swaps and other entry errors. If you still manage to mess up, you have a ten day window for a recall. Direct debits can be reversed for eight weeks.
Interesting, not sure how that works but it does sound a lot nicer than the routing and account numbers we have here.
> Still using physical checks with all their downsides.
I have literally never written a check in my life. Granted, I know older people who still use them but I have no need for them whatsoever so who cares? I pay all my bills digitally and I can venmo friends cash digitally too.
> Direct debit being insecure to the point that someone getting your account data (or card swipe) can raid your bank account with the money being tied up for weeks (SEPA direct debit reversal is instantaneous and fully returns the funds).
I don't think I use that.
> CC "rewards" cost being placed on the merchants (thus raising the CC costs for all customers) instead of being capped like in the EU.
Credit card fees I can basically get entirely back through the reward with a single credit card. Could it be more fare with capped fees, sure and I'd support that policy. As a consumer, I don't care though.
Yea, specifically with Citibank’s external transfers interface. You can write yourself a check for the full amount, but then you’re limited by ally’s edeposit limit or mailing it. Or if ally can do an ach pull that’d work too.
This is my route too. I have accounts at 4 institutions with various levels of service.
2 of them provide good rates on savings
1 is local and has ATMs and branches in my area
1 provides a fantastic online experience
Once you've verified accounts between banks, it's fairly painless to transfer between them (and usually free if you initiate the transfer from the bank that will receive the funds)
Works very well and gives me a lot of flexibility with basically no additional work. It takes all of 5 minutes once a month to configure deposits to hit the current winner on interest rates.
I'd also note that I've been happy to see ACH transfer times decrease dramatically in the last 5-6 years. Used to be consistently 3 days, 2 if you were lucky. I now regularly see same day transfers. PayPal -> bank is getting close to european speed: if I schedule an ACH transfer with them around midnight, it will be in my bank during the following 12 hours.
> So what banks are actually competing over is the people who happen to be shopping around for a new bank- something most people do only a handful of times in their life.
It's worse than that. I shopped around for a new bank based on my needs -- I picked Capital One specifically because of their advertised "no foreign transaction fees". [In fact, there's a fee around 1%, it's just not called a "foreign transaction fee". But 1% is low enough for me.] Interest on savings accounts didn't register at all.
And really, interest on savings accounts shouldn't register for anyone looking for a bank account, because savings accounts are a terrible, terrible way to invest your money. If you have money in a savings account for the purpose of earning interest, you're doing it wrong.
> savings accounts are a terrible, terrible way to invest your money. If you have money in a savings account for the purpose of earning interest, you're doing it wrong.
Agreed.
> And really, interest on savings accounts shouldn't register for anyone looking for a bank account
Disagreed. Emergency funds/long-term cash deposits are a real and valuable thing, and while it's true that any money in a savings account loses value to inflation, you'd be crazy to not try to minimize the gap between your interest rate and inflation as much as possible. The difference between a 0.1% interest rate at Chase (or whatever) and ~2% at Ally is huge (I realize no one has 2% interest rates anymore, but those numbers were both roughly accurate before Covid).
> savings accounts are a terrible, terrible way to invest your money. If you have money in a savings account for the purpose of earning interest, you're doing it wrong.
Note that this wasn't always the case, though. Until not too long ago, keeping your money in a savings account, not making too many "risky" investments, and benefiting from compound interest in the long term while saving for retirement was considered basic financial literacy.
However, by now interest rates have been near zero and well below inflation for the entire adult lives of anyone under ~35, so the common wisdom has shifted to investing your money in the market being basic financial literacy.
> However, by now interest rates have been near zero and well below inflation for the entire adult lives of anyone under ~35
When were interest rates on bank accounts not below inflation? Bank interest failing to even keep up with inflation is not a recent phenomenon; as far as I'm aware, our low rates now are better, inflation-adjusted, than the old high rates were.
What else do you suggest that is liquid and essentially risk free? There is a purpose for this type of product. If not a high yield savings account, what is it?
I wonder if most people start out banking based on where their parents bank? And most only switch when there is an event which make them unhappy with the bank.
There are services (google Max my Interest, this is not a product plug) that will allow you to automatically shuffle money between many high-yield online savings accounts. They'll make sure that your money stays in the highest-yielding account, but remains under the FDIC insurance limits.
> It's not fair to people who buy government funds
Are you suggesting our government should prioritize investors who buy government bonds over its own citizens (who at least in theory, would have to pay for those bonds in the future with taxes)?
I am saying that money market funds that buy short-term treasuries ("government funds") have the same level of safety as insured deposits. Because of this safety, they have lower yields than prime funds which invest in unsecured short-term corporate debt.
It is unfair to the careful people who invest in government funds to bail out prime fund investors every time it looks like they might lose 0.5-1%.
That's fine, I use a credit card like a charge card, have my credit union as my check clearing house with minimal operating funds, and float the rest where I can get good rates. I can shop around the credit card and savings accounts at any time.
I think most people are worried about changing banks because their current bank hits them with annoying fees, and they don't want to double the problem by having two banks. But online banks (along with small local banks and credit unions) do not charge monthly fees. You can open a new account with a small deposit, receive a new debitcard/checkbook, and then slowly transition. The only squeeze you'll feel is the minimum balance requirement at your legacy bank as you split your balance to cover transactions at both places.
I have always believed there is room for an $xx/year service in the US that provides a virtual bank account number so you can easily switch banks in the background. The decrease in switching friction may actually make banking interesting/competitive again.
Fidelity and other major online brokerages do this with their money market accounts. It doesn't chase an optimal yield like what you are proposing, but that would be interesting. Instead, they use a large basket of money market and savings accounts at US banks and interest payments on your savings are drawn from a random bank in the basket each month. Because the federal reserve sets interest rates, it's difficult to chase yield in bank savings accounts. You'll always do better with bonds and stock dividends.
Once people started using any such service, they would realise that their customers are locked in / can't switch easily, so they'd raise their prices to $xx+1 each year... and then you're back to where you started from.
And your typical mortgage contract will include clauses that stop you from moving your mortgage to some other provider without penalty. You can get badly locked in like that with rates from a decade ago.
We should each have our own account number that is ours. This could be registered with the state, when born. It would contain a pointer to a private bank account. Banks would have to implement a one day transfer to flip the pointer.
And while we’re at it, we can strip the account number of its powers as a payment / deposit authorization. It supremely sucks that once someone has it and your routing number, it can never be rescinded without changing account numbers (i.e. closing and reopening the account, re-establishing direct debits / deposits, etc.)
Who is maintaining the ledger exactly? On what terms? Who has access to that account? What controls are they entitled to place on it? Is it maintained by the government?
If yes, then you have a whole new set of problems. Now you have all your funds in one basket. (Remember, you've implemented the indirection mechanism, so it doesn't matter which bank you do business with, it's this weird government one all the time).
Politically, I don't see it happening. Or if it does, it"'ll completely change the color of the financial sector most likely, as most regular people stick with this weird government account, but anyone more financially entrenched (or who have trust issues, and do not desire to let the G-man sit on their financial transaction history) flee to more "discrete" financial institutions.
Fintech is one of those that rarely makes anything fundamentally "better"; just more expensive with more opportunities for fee extraction, and the capability to exploit those economies of scale like nobodies business.
Maybe it is the way to go for a government maintained version. Might make the IRS's job that much easier. Maybe they can get away from only going after the small fry and actually concentrating on nailing down more complicated forms of tax evasion.
That's absolutely fair, and I admit, I wouldn't be fundamentally opposed to it. The little magic 8-ball in my mind I use to gauge the plausibility of a particular political direction of development simply sees far too many endemic issues with American institutional philosophy to see something like this gain traction. Mind, I've worked in that space. It's a ridiculously profitable industry for those that operate in the space (usually with customer hostile profit generating models, and demographic engineering to ensure you're hitting the most vulnerable folks for revenue extraction; part of the reason I ended up getting out and refuse to look back).
As it turns out, the profitability per employee person in the company can be extremely high, which means there is a lot of lobbying potential to keep a cohesive National government maintained/specified banking infrastructure from coming into existence.
I'm not just trying to take cheap shots or be dismissive of the idea. It's just experience tells me this is well within "everyone stops being a dick" territory in terms of probability of realization through organic development short of some higher being deciding I need a lesson in being more humble today. There is some synergy or likelihood of an indirect development in that direction with the whole Stimulus boondoggle going on in Washington, but the resulting implementation will almost guaranteed be challenged as soon as any hint of the present crisis having resolved comes around. Private industry in the U.S. as a rule will raise hell to destroy a public alternative as unfair competition on free market principles, notwithstanding the self-referential inconsistency the private actors demonstrate at the first chance they get. This is why there are only really 3 public trust quasi-Corps I'm aware of. Post-Office (Constitutionally guaranteed), Freddie Mac, and Fannie Mae. Okay, technically the Federal Reserve, but to be frank, their track record is so spotty, it feels more like the most elaborate financial shell game ever perpetrated than an institution to consider seriously effective.
It hurts frankly. I hate that the sector is as big as it is because we can't just all agree that maybe this thing is pervasive enough to warrant folding into the basic Public Trust toolkit. That's just the reality on this side of the pond though. We measure the trustworthiness of Government as a repository for broad sweeping social power based on the least virtuous operator in living memory. Unfortunately, we just haven't had a long enough run where people could be trusted not to abuse anything more functional than what we have. Quite the opposite. Gives me a headache just dwelling on it most days.
You've been told you can't trust the government for almost 40 years now. What evidence do you actually have that the government is any less "trustworthy" than large corporations? Or more wasteful? Or less efficient?
There are endless stories of government boondoggles ... precisley because the government is public. Dig a little deeper and all the same stories of organizational dysfunction exist in corporations large and small - even in some co-ops, sad to say.
Don't just buy into the relentless right-wing propaganda that government is broken/inefficient/useless/corrupt. Seek out actual evidence. Recognize that all human organizations have issues and that once (say, the 1960s) we used to believe (and devote significant resources to the idea) that we could improve them. Government is no exception to that, any more than Verizon or REI.
If changing your bank to get a better savings rate took 15 minutes and had no other consequences, banks would be updating their rates by the second to beat one another. But it doesn't. If your mortgage, credit cards, car loan, etc, are all with the same bank then switching your bank account only just to get 0.1% higher interest is a huge hassle for little benefit. Especially if you don't have much money sitting in a savings account- even with $5000 in your account, a 0.1% difference is $5/year.
So what banks are actually competing over is the people who happen to be shopping around for a new bank- something most people do only a handful of times in their life. Meanwhile, leaving rates low improves the banks bottom line. Short term vs long term tradeoffs.
In short: banks have little reason to raise savings account interest rates regardless of what their central bank gives them.