Sec. Galvin: Why aren’t savings account interest rates going up, too?
Jen Skoglund is a stay-at-home mother-of-two in Westwood. She and her husband have been diligently building a nest egg for years.
“For short-term savings, we don’t really do much other than a savings account,” Skoglund said.
Skoglund doesn’t know how much interest they’re earning back for their life-savings, but she knows it’s not much.
“It is so low. I don’t even know the rate, but it is very low,” Skoglund said.
Interest rates are creeping back up on credit cards, loans and mortgages but remain shockingly low on traditional savings accounts. The national average interest rate for a savings account is 0.06%, according to Bankrate.com.
Mass. Sec. of the Commonwealth William Galvin said there is no indication banks are planning to raise saving account interest rates, and he doesn’t think it’s fair.
“I think it’s a double-whammy for consumers,” Galvin said. “This is a case where the banks will win because they charge higher rates for their credit card and loan services, but the consumers will simultaneously lose because they don’t get the benefit of the high interest rates that the banks are getting. I think that is wrong.”
Galvin’s office doesn’t have the power to regulate banks—that happens at the federal level. But the Sec. of the Commonwealth does oversee in-house banks that set up cash sweep accounts in Massachusetts. Sweep accounts are used by brokerage firms to hold investors’ money while it is waiting to be invested.
Galvin launched an investigation last month into six financial institutions— TD Ameritrade, Merrill Lynch, LPL Financial, Ameriprise, Securities America, and SoFi—to determine if those banks planned to increase sweep account interests rates. Galvin said his initial investigation revealed billions of dollars sitting in Massachusetts sweep accounts.
“My inquiry to those entities is how much are you going to raise your interest rates by? And so far we’re still waiting for an answer,” Galvin said.
“There needs to be something said about it. We can’t just say never mind. It’s a significant amount of money,” he said.
Bankrate says people should consider putting their nest eggs in online banks with a “high-yield savings account.” Online banks can afford to offer better rates because they don’t have the same overhead costs as a traditional bank. According to Bankrate, online banks like Bask Bank, Lending Club and CIT Bank have interest rates ten times higher than the national average.
“One big difference between savings accounts offered by online banks and those offered by traditional banks is the [Annual Percentage Yield] offered. Online banks usually offer much more competitive yields. Brick-and-mortar banks tend to offer something closer to the national average, which is currently 0.06 percent APY, or they offer something that’s nearly nothing — 0.01 percent APY,” Bankrate said.
Skoglund said she and her husband will continue to build their savings, even if their current bank isn’t rewarding them for it.
“We keep some in savings, we invest some, but I mean the interest rates you get on a savings account, it’s just not worth it,” Skoglund said.
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