We often discuss the impact of the Federal Reserve monetary policy decisions upon interest rate. However, there is another factor which seems to be exerting further downward pressure on interest rates; and that is the simple economic law of supply and demand. A recent survey of more than 1,000 people from Bankrate found that just over half of respondents place a higher priority on growing their emergency savings , an increase of 7 percentage points from last year. About one-third of respondents said paying down debt was their top priority, a decrease of 6 percentage points. While it is an excellent financial practice to establish emergency savings; the fact that more dollars are going to saving accounts--irrespective of interest rates--means that banks and credit unions have little incentive to raise their savings and CD rates. When the Fed finally does start raising interest rates down the road; we will want to keep an eye on this metric of savings account prioritization. Hopefully as the pandemic wanes; the savings metric noted above will revert to baseline levels so it will no longer exert downward pressure on savings rates.
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