1 in 3 Savings Accounts, 1 in 4 Checking Accounts Saw APY Changes at Start of Coronavirus Crisis

Interest rates have taken a significant dive amid the coronavirus pandemic. On one hand, that’s a good thing for borrowers. On the other hand, though, 1 in 3 savings accounts and 1 in 4 checking accounts saw APY changes in March 2020 — the first full month of the coronavirus recession — after a series of federal funds rate cuts.

To find out the extent to which APYs have been impacted by the pandemic, we used the DepositAccounts database to study 581 savings accounts and 296 checking accounts between June 2019 and November 2020. Here’s what else we found.

Key findings

• 32.9% of savings accounts had APY changes in March 2020, compared to an average of 8.7% over the prior 6 months.
• 25.3% of checking accounts had APY changes in March 2020, compared to an average of 5.5% over the prior 6 months.
• Average savings account APYs dropped from 1.31% on Feb. 1, 2020, to 0.43% on Nov. 1.
• Average checking account APYs dropped from 1.09% on Feb. 1, 2020, to 0.54% on Nov. 1.

7.6% of savings accounts and 8.8% of checking accounts saw at least 2 APY changes in March amid start of the coronavirus crisis

During the period we examined, the most movement — regardless of account type or percentage of APY changes — came in March 2020:

For the most part, a single monthly APY change was most common, both pre-pandemic and after the initial lockdowns. Between April and November 2020, an average of 18.1% of savings accounts and 11% of checking accounts had APY changes at least once a month.

In response to the crisis, the Federal Reserve held two emergency meetings in early March. At the second meeting, the federal funds rate was reduced to a near-zero target range, and many financial institutions quickly responded with deposit rate cuts.

Savings accounts were impacted more because — per DepositAccounts founder Ken Tumin — their rates have generally been higher than checking account rates, so there was more room to fall.

Although less common, some institutions did opt for two or even three APY changes during a given month. For example, 7.6% of savings accounts and 8.8% of checking accounts changed their APYs at least twice in March 2020, while 2.2% and 0.3%, respectively, changed their rates at least three times. Multiple APY changes were somewhat rare in the prior six months.

Multiple changes, Tumin said, were likely done to protect institutions from losing customers. After all, a single, large APY cut might be seen as more problematic for customers than a series of smaller ones.

Average savings account APYs drop 67.2% from February to November, while average checking account APYs drop 50.5%

Over the course of 10 months — February to November — both savings and checking accounts saw significant drops in the average APY:

During the period we measured, average savings account APYs peaked in September 2019 at 1.77%. But by November 2020, those rates had fallen to 0.43%. Checking accounts took a similar plunge, though that peak came in July 2019. But — as noted above — checking rates started lower, so the difference was less stark.

The Federal Reserve has had a role in rate changes both before and during the pandemic. For example, the federal funds rate was cut by a quarter of a percentage point in August 2019 — the first cut since 2008. Average APYs for both savings and checking accounts dropped substantially that month:

• 1.65% to 1.17% for savings accounts
• 1.57% to 0.67% for checking accounts

Two additional cuts to the federal funds rate came that year, in September and October.

The larger federal funds rate cuts that came in March 2020 — from a range of 1.50%-1.75% to a range of 0%-0.25% — contributed to more APY drops in 2020.

Where APYs are headed in 2021

Economic recovery is often a key to recovering interest rates — and according to the latest jobs report, the outlook isn’t exactly encouraging. The unemployment rate held steady in December 2020 at 6.7%, with total nonfarm payroll employment declining by 140,000.

“I think deposit rates will have little movement in 2021,” Tumin said. “There may be some small downward movement, but there are indications we are reaching a rate bottom for deposit rates. Savings and checking rates are unlikely to have any significant upward movement until the Fed decides to start hiking rates. Based on Fed communications, that’s very unlikely to happen in 2021.”

As vaccinations continue to be administered, this could change. But as with all things pandemic-related, things are very much in flux.

Where to put your money now amid the coronavirus crisis

As APYs have taken a dive, it’s natural to wonder about your best place to keep money. It is still important to take a long-term approach, and if you’re fortunate enough to have an emergency fund, keeping those funds available is still a good idea.

A savings account is still well-advised, despite APY decreases. That way, if the pandemic or other circumstances end up taking a further toll, you’ll be better prepared to hopefully avoid turning to high-interest debt, like credit cards.

Opening a new savings or checking account could also help, as better APYs may be available from other institutions. Online banks, for example, typically offer better rates and the convenience of easily accessible funds. There may even be bonus offers for signing up, provided you meet the account requirements.

Methodology

Using the DepositAccounts database, analysts reviewed the monthly changes in interest rates (expressed as annual percentage yields, or APYs) of 581 savings accounts and 296 checking accounts between June 2019 and November 2020.