Bankrate Senior Industry Analyst Ted Rossman assesses the savings rate environment being offered by banks, interest rates, and how inflation is affecting consumer spending.
SEANA SMITH: All right, interest rates continuing to climb as the Fed's battle against inflation drags on, making things like mortgages and car loans more expensive for everyday Americans, but banks aren't exactly following suit when it comes to saving accounts.
Joining us now to discuss a little bit more about this, we want to bring in Ted Rossman. He's Bankrate's senior industry analyst. So Ted, when you take a look, rates are rising everywhere else, it seems like, except for savings accounts. Why is that the case?
TED ROSSMAN: The big banks are not budging their savings accounts much at all. It's because they have so many deposits. And loan growth has been pretty tepid. They have all the money they need in terms of deposits. The banks that do compete aggressively are the smaller institutions.
So it's not the one that has a branch on every corner, not the one that has its name on the stadium, but smaller institutions. We see rates as high as 3.01% now. Institutions like Dollar Savings Direct, UFB Direct, these are completely federally insured. So I say move your money over to these and get that risk-free return.
RACHELLE AKUFFO: Now, a lot of people obviously more comfortable with some of these bigger banks that they recognize, but as you mentioned, they're not seeing the returns. How important is it to shop around at the moment?
TED ROSSMAN: It's really important because there is an arms race going on at the high end of the savings market. By the way, I think these rates are even more attractive than CDs because they're liquid. You could get 3.6% on a one-year CD, but you could get 3.01 on a totally liquid, federally insured savings account. And these rates could continue to go higher, too, because banks do compete.
But you're not going to get anything, pretty much, by just sitting in the big bank. The average there is 0.14. So what you want to do is shop around, look for federal insurance, and look to tie this to your checking account. I think that's a good move. You may keep the big bank checking account for ATM access and other things. Link it to a savings account, park your emergency savings there. You could get at least a few hundred dollars a year. And if you save $10,000 over the course of the year at 3%, that's 300 bucks, basically, for doing nothing.
SEANA SMITH: Ted, some of the bank executives were asked about this on Capitol Hill last month, and they said that they do expect higher rates on customer deposits. I guess, how long until we start seeing higher rates in some of the-- from some of the larger banks?
TED ROSSMAN: It's going to be relative. I mean, if the big banks move rates up, it's not going to be by much. I really think that it's going to continue to be the case that the most attractive rates are from the smaller institutions because this is really how they compete for deposits. They don't have the same kind of name recognition or national footprint.
So I wouldn't expect much of anything from the big banks, but I do think that the smaller institutions, it's going to continue to go up. I mean, that 3% now, that could be 3 and 1/4%, 3 and 1/2%, maybe even more by the end of the year because the Fed continues to raise rates. And this is actually one of the real silver linings. It's the best time for depositors in years.
RACHELLE AKUFFO: And Ted, it's interesting because you're also seeing not banks, but payment systems, like PayPal, also trying to get in on the action. What do people need to be aware of with that and the returns that they see there?
TED ROSSMAN: You definitely want to be mindful of FDIC insurance because you don't always get that with the peer-to-peer services and the fintechs. So you definitely want to make sure that it's backed by FDIC insurance, in the case of a bank, or NCUA, in the case of a credit union. Other than that, I would just think about fees, minimums, transfer time.
Generally, though, you can get your hands on this money within a business day or two. So that's where I like linking it to a checking account. Maybe you have a big bank, brick and mortar checking, and then you have one of these online savings accounts. And it's a nice companion, better rates. I also think the out of sight, out of mind lets you perhaps avoid some of those impulse buys. But the money's still there within a day or two if you need it.
SEANA SMITH: Ted, let's take a step back here and talk about the larger picture here when it comes to consumer spending, as they are facing higher rates. I know you track almost every facet of the consumer right now, the spending patterns that we are seeing. How has that changed over the last several weeks?
TED ROSSMAN: People are definitely worried about inflation. We hear that time and time again when we ask about things like holiday shopping, or holiday travel, or in the recently concluded summer travel season. Most people say they're making adjustments because of inflation, but they're still spending. And I think that's a key point. And we see it on goods, we see it on services.
People are spending probably more than we would have projected at this stage of the COVID recovery and just given all that's going on with inflation. I think the consumer is holding up remarkably well. The question is, how long does that last? Does that come with higher debt loads, higher delinquencies? So far, so good. But some of these are lagging indicators. So it bears a close watch.
RACHELLE AKUFFO: And I also want to ask you about some of these credit card balances and loans and the things that people are starting to take out as they now are dipping more into their savings than ever as inflation starts to bite. What should people be aware of? And what are you tracking when it comes to things like credit card debt?
TED ROSSMAN: The average credit card rate is about 18.5% now. That's the highest in 30 years. Balances have been going up as well. According to the New York Fed, as of Q2, they were four percentage points below that all-time high, which was set in late 2019. But they did tick up 13% from Q2 of last year to Q2 of this year. We're going to get the Q3 data soon. I think that could well show a record.
But this is another one of those kind of counterintuitive things, that despite the highest rates in 30 years, despite what could soon be an all-time record for credit card balances, delinquencies remain very low. The debt-to-income ratio remains very low. Right now, the industry is thinking about this in terms of normalization. You know, yeah, these delinquencies are going to go up, but so far, the thinking is that it won't be in a worrisome sense. It'll be maybe back to 2019 levels. The strong job market definitely helps.
RACHELLE AKUFFO: Certainly, resilient, at least for now. A big thank you to Bankrate senior industry analyst, Ted Rossman. Have a great afternoon.