2019 Rate Trends for Savings Accounts - Rates Starting to Plateau

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The fourth Fed meeting of 2019 is scheduled to start Tuesday. The FOMC statement should be released on 2:00pm Wednesday. The expectation is for the Fed to continue to hold steady on rates. However, odds have been rising that the Fed will cut rates. The CME FedWatch Tool still shows that the highest odds are that the federal funds target rate will remain unchanged (80.8% remaining the same vs. 19.2% cutting by 0.25%). However, the odds of a rate cut rise dramatically for the Fed’s July meeting (only 15.7% odds of remaining the same). On Wednesday, the FOMC statement, the Fed Chair’s press conference and the Fed’s economic projections should provide insights if those odds are reasonable. For now, one thing that seems very likely is that we have reached the peak in this Fed rate cycle.

I thought it would be interesting to see how savings account rates have responded this year during the Fed pause. To help answer that question, we did an analysis of our proprietary banking data with a focus on savings account yields since the Fed started raising rates in December 2015.

Savings Account Rates Start to Plateau

The following chart is an updated version of the December chart. It details how savings account rates have changed at online banks, brick-and-mortar (B&M) banks and credit unions. The average APYs at each of the three types of institutions are plotted starting in September 2014 and ending on June 2019. The chart is based on savings account data from more than 6,000 banks and credit unions.

During the time when the Fed first started to hike rates, savings account rates were slow to respond. Only minor savings account rate gains were visible for the first three Fed rate hikes. That started to change after the fourth Fed rate hike in June 2017.

From June 2017 to December 2018, savings account rate gains were accelerating . This can be seen in the chart as the slope became steeper. The maximum steepness started around March 2018 and continued through 2018. Then in 2019, the slope became more gradual. Rates have still been rising, but they haven’t been increasing as they were in 2018.

The rising slope can be seen for all three types of institutions, but it’s most evident for online savings accounts. The average online savings account APY is represented by the yellow line. Less noticeable is the rise of the average savings account rates for B&M banks and credit unions. The dark blue line represents the average savings account APY for B&M banks, and the light blue line represents the average savings account APY for credit unions. Both of these lines have been relatively flat. The second chart just shows the averages for only B&M banks and credit unions. This makes the slope changes more apparent. Like the online savings account average, the steepest slopes are in 2018. The slopes are becoming less steep in 2019.

The following is a summary of the increases as shown in the charts of the average savings account yields for the three types of institutions for the last three years. As can be seen, the rate increases are slowing down in 2019.

  • 2019 (up to June):
    • 8% at B&M banks
    • 9% at credit unions
    • 11% at online banks
  • 2018:
    • 44% at B&M banks
    • 21% at credit unions
    • 60% at online banks
  • 2017:
    • 13% at B&M banks
    • 6% at credit unions
    • 32% at online banks

Online Savings Account Rates Continue to Dominate

The average savings account rates at B&M banks and credit unions have risen significantly, but they’re still much lower than the average rate at online banks. As of June 2019, the average savings account yield at online banks is 1.69%, which is 6x the yield at B&M banks (0.28%).

Credit unions continue to lag B&M banks. The average savings account yield at B&M banks now exceeds the yield at credit unions by 3 bps. Credit unions started to lag in June 2018.

Average savings account yields as of June 2019 are as follows:

  • 0.28% at B&M banks
  • 0.25% at credit unions
  • 1.69% at online banks (almost 6x the yield of B&M banks)

Online savings accounts with rates much higher than the online average are readily available. The highest nationally-available online savings account yield without large balance requirements is 2.52% as of 6/17/2019. This is up by only 2 bps from December when the highest yield was 2.50%. Several well-established online banks offer savings account yields of at least 2.20%. You can find the highest rates by using our savings account table and money market table.

Savings Account Rates for Rest of 2019

If the Fed does cut the federal funds target rate this year, history shows that savings and money market account rates will also fall. There will be some lag. The size of the lag can be estimated using my weekly summary data from 2007, when the Fed last transitioned from a pause to a rate cutting phase.

The last Fed rate cycle began on June 30, 2004 when the Fed began a long series of rate hikes. The last of these rate hikes took place on June 29, 2006 when the federal funds target rate reached 5.25%. The federal funds target rate remained at 5.25% until September 18, 2007. On that date, the Fed cut the rate by 50 bps to 4.75%. The Fed continued to make cuts until the federal funds target rate reached a bottom, a range of 0% to 0.25%, on December 16, 2008.

I looked at how savings and money market rates declined after the first Fed rate cut on September 18, 2007. Using my 2007 weekly summary data, I tracked the average yields of 20 rate-leading online savings and money market accounts before and after that first rate cut. Just before the Fed rate cut, the average of those 20 savings and money market accounts was 5.24% APY. By the end of October 2007, the average had fallen 25 bps to 4.99% APY, and 16 out of the 20 accounts had rate cuts.

In summary, I expect online savings account rates to hold fairly stable as long as the Fed holds rates steady. When the Fed finally starts cutting rates, online savings account rates will certainly fall. There will be some lag, but as history shows, expect cuts within a month or two after the Fed rate cut.

Related Pages: banking tools and data

Comments
Jean
Jean   |     |   Comment #1
Thank you Ken, excellent report. I imagine it will be very disappointing for lots of people (especially elderly seniors on fixed incomes) if online savings rates start to tumble. I have moved 90% of my liquid funds into the 13-month NPCDs @ 2.50%. At least I will have a fairly decent interest rate until July of 2020.
deplorable 1
deplorable 1   |     |   Comment #2
I still don't understand why there is all this talk about rate cuts when we have a strong economy. If the FED cuts rates now it will be like admitting that they raised rates too high. I don't think they did raise rates too high so I expect them to stay on hold through 2019 and I made that call in 2018. I also am not expecting a recession in 2020 other than the media trying to create one. This could end up just being a long pause with a few more rate hikes down the road particularly if a China trade deal gets done and inflation ends up increasing. The real question is will the FED acknowledge that inflation is increasing so far they have not. The stock market looks poised to make a new high without the help of the FED.
DAReader01
DAReader01   |     |   Comment #3
"I still don't understand why there is all this talk about rate cuts when we have a strong economy"

It's because the president is very vocally calling for a rate cut. I'm not saying he's right or wrong, or trying to bash anyone. But that's why it's a such a big issue at the moment.
RRR
RRR   |     |   Comment #4
Every President calls for rate cuts and thinks the Fed is too tight. Re-election is mostly about the economy, and low interest rates stimulate the economy.
That isn't something unique to President Trump.

Chairman Powell has made it abundantly clear that he is independent of influence from President Trump, and there is plenty of evidence available to be able to make a good case for cutting rates having nothing to do with President Trump.

I'm not suggesting rates will be cut. I have no prediction one way or the other because a good case could be made either way.

There is no question that President Trump's regulation cuts, tax cuts, energy exploration policies and other economy stimulating policies have made the US economy uniquely strong even as the global economy weakens. The US economy is it the beacon of strength in the world right now, but the economy virtually everywhere else is weak. It's extremely difficult to maintain the same pace of growth in the US under those conditions.

Presidents are able to have significant effects on domestic economies through domestic policy. It's far more difficult to control the global economy. But if there's anything that can achieve that it would be President Trump's attempted realignment of trade policy.

And so we have a conflicting economic situation that makes it difficult to predict what the Fed will do. While the domestic economy is the strongest it has been in decades, the global economy is far less robust. That creates a conundrum for the Fed.

Will rates increase, decrease or stay the same? Flip a three-sided coin to decide. You have a one-in-three chance of being right.
#8 - This comment has been removed for violating our comment policy.
S&P500
S&P500   |     |   Comment #13
I would question the policies on economic stimulation. The S&P was down last year by at least 6% and now finally clawing it's way back but that could change in the 2nd half of the year and we could have another down stock market year.
David k
David k   |     |   Comment #25
Thanks s and p. Market up market down. Your point?
milty
milty   |     |   Comment #5
From what I'm reading the market has already built in the expected rate cuts. These definitely be contrary times where a good economy is bad news for savers, so gather ye rates while ye may.
Deplorable Fan
Deplorable Fan   |     |   Comment #10
If the market has "built in" rate cuts, it is too late to "gather ye rates."
milty
milty   |     |   Comment #11
Hmm, still some 3+% savings rates available, but I would still agree with some that the market has been reacting recently like the rate cuts are a done deal.
#9 - This comment has been removed for violating our comment policy.
Robb
Robb   |     |   Comment #12
Guess we will see how politicized the Federal Reserve really is tomorrow and in the month's ahead. No reason why we should be cutting rates with the markets near ATH's, Unemployment at 50 year lows, wages growing at 3% or so, etc.
#16 - This comment has been removed for violating our comment policy.
#22 - This comment has been removed for violating our comment policy.
deplorable fan
deplorable fan   |     |   Comment #23
Deplorable is literally the only American to have earned 0% for 8 years.

I believe you when you say you don't understand, because you have never understood.
QED
QED   |     |   Comment #6
What is worrying me is increasing talk this morning that the Fed will cut tomorrow. Surely hope that does not happen. I am not prepared for a cut tomorrow . . . July, sure . . . but not tomorrow. And if I may say so:

Draghi is CERTAINLY not helping Americans like me this morning. He is little more than a manipulative European. Unfortunately he is also a very powerful European. I hope he does not prevail. We will know tomorrow:

https://www.marketwatch.com/story/dow-futures-rally-150-points-as-ecbs-draghi-hints-at-rate-cuts-ahead-of-fed-meeting-2019-06-18?mod=asia-markets
#7 - This comment has been removed for violating our comment policy.
#17 - This comment has been removed for violating our comment policy.
#21 - This comment has been removed for violating our comment policy.
Engineer
Engineer   |     |   Comment #14
We're still losing technical jobs to India. Most of the contributors on this blog are retired so they may not know or care. If you're an older employee at a large tech firm you don't see the economy working well. My job as an RF Engineer is safe because it takes many years to be proficient but I've been training guys/gals from India for years. Cheap tech labor is apparently a wave of the future.
#15 - This comment has been removed for violating our comment policy.
Just Saying
Just Saying   |     |   Comment #24
#14
I taught Chinese students majoring in Computer Science more than thirty years ago. We knew then they were "learning" our technologies, regardless of ownership. When I saw a standard CS text, written by resident faculty, printed on cheap paper I learned it was a copy made in China from a single legal copy purchased in the bookstore. These guys had no problem showing up in class with a bootlegged copy of a text written by the guy in the front of the room!
111
111   |     |   Comment #26
These days, no paper needed, neither "cheap" nor "expensive". Just a PDF or epub of the ebook, on a laptop that may or may not contain a valid implementation of Windows 10.

But on the other hand, we (the US) did Napster, all by ourselves. And BitTorrent. And much of the rest. So who is really Simon-pure here?
Simon
Simon   |     |   Comment #27
I am Simon.
Why do you ask?
#28 - This comment has been removed for violating our comment policy.
ColorBlind
ColorBlind   |     |   Comment #20
Just a suggestion... maybe change the symbols in the graph? Instead of circles for each of the three categories, maybe make circles, squares, and triangles to help differentiate for the color blind and even those who print this page in black/white.
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