You, the consumer, have power in the market. These new policies are helping to unleash that power, and it’s very much to your benefit. So save, and expect your bank to reward you for it. Or take your money and put it with someone who will

For the first time in a decade, banks are actually paying their depositors

By Dan Calabrese ——Bio and Archives--August 14, 2018

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For the first time in a decade, banks are actually paying their depositors

Excessively high interest rates are not good. You probably already figured that. But interest rates that stay near zero for the better part of a decade are not good either, although you’d never know it from the geniuses who run the Federal Reserve. They’ve been keeping interest rates artificially low ever since the mortgage market meltdown of 2008 as a way of loosening credit and, according to them, fighting unemployment.

But why would low interest rates be bad? That’s what you want to know. You can get a lower rate on your mortgage, on your credit cards, on your car loan . . . why would anyone have a problem with that? Here’s why: Remember, when you subsidize something, you get more of it. When you tax something, you get less of it. Interest rates that are lower than the market would suggest they should be are effectively a subsidy. And what do they subsidize? Debt. Now, you might not remember this if you’re below a certain age, but there is this concept where banks pay interest on your deposits. That used to be one of the reasons people put their money in banks. During the Obama years people almost forgot about the idea that you could earn money by putting it on deposit with a bank, since it was the new normal and we had to accept grim limits on our prosperity. Like so much else that’s blessedly going away as Obama recedes into history, this too appears to be changing:

The grim decade in which savers earned near nothing on their bank deposits is ending. That is good news for consumers and bad news for some banks. Since the Federal Reserve began gradually raising interest rates in December 2015, banks have been slow to pay depositors higher rates. With the latest rate increases, that is starting to change.

Online banks are leading the way, paying nearly 2%, while big banks are only just getting meaningfully above zero. What is important, though, is that every time the Fed raises rates, a bigger portion of that increase goes to consumers. In the second quarter, the so-called deposit beta, or the portion of a rate increase that is translated into deposit costs, jumped to 44% from 28% in the first quarter, according to Keefe, Bruyette & Woods. “This quarter I would characterize broadly as an acceleration or catch-up quarter” for bank funding costs, said KBW analyst Christopher McGratty. At the same time, long-term lending rates are staying low. This flattening of the yield curve puts certain kinds of banks in a vise, but not all. Banks with lots of loans tied to short-term benchmarks, including most business lenders, are repricing their loans higher constantly, which offsets the higher rates paid to depositors. But banks that make more long-term loans, like commercial real estate lenders, are coming under greater pressure, Mr. McGratty said. One important reason deposit rates have stayed low is that after a decade of zero rates, savers now view bank accounts as ways to manage money and payments, not as a source of income. This effectively has made banks almost like technology companies, competing to offer depositors convenient websites, apps, and payment solutions.

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People who have money to deposit should remember something as they consider the relationship between themselves and banks: The banks need your money every bit as much as you need a place to put it. That money they lend out for interest that makes them a profit? That’s your money. That’s where they get it. From you. You’re providing them with something they need when you put your money on deposit with them. You should be compensated for it. But for the past decade or so, you weren’t, and you were told not to expect to be compensated anymore. The financial community kept interest rates low, which mean borrowing was easier but saving was less rewarding. That makes no sense, yet it was kind of a perfect fit for an era in which the federal government doubled the national debt in just 10 years. You, the consumer, have power in the market. These new policies are helping to unleash that power, and it’s very much to your benefit. So save, and expect your bank to reward you for it. Or take your money and put it with someone who will.

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Dan Calabrese——Bio and Archives

Dan Calabrese’s column is distributed by HermanCain.com, which can be found at HermanCain

Follow all of Dan’s work, including his series of Christian spiritual warfare novels, by liking his page on Facebook.

You, the consumer, have power in the market. These new policies are helping to unleash that power, and it’s very much to your benefit. So save, and expect your bank to reward you for it. Or take your money and put it with someone who will

For the first time in a decade, banks are actually paying their depositors

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