Savings accounts are as high as they were for a while and are super competitive, which begs the questions; how long will they stay this high for.

We all saw how the Fed Rate Projection affected savings in just a few days. Ally lowered their rates from 2.20% to 2.10%, and then wealth front increased them to 2.57%.

Fed funds are basically fluctuating based on scarcity when theirs a lot of money in the form of credit the fed funds go down and when the fed stop buying securities in the bank it pushes the fed rate up because of the lack of money and all banks want to make sure they have that money in reserve.
How they affect: Savings

What is the Fed Interest rate:
It’s the interest rate that banks lend money to each other overnight, to make sure they can meet the daily reserve requirements.

What are the feral reserve requirement for Banks:
This the money that banks legally required to keep on their books daily to make sure they have enough to cover a percentage of the checkings holding and other expenditures.

How does it affect banks:
– Anyone that’s conducting business, yes you can run the entire business through your personal taxes but this way you are more protected and can sleep better at night. Plus its free.

Inflation:
– The target inflation rate is 2%, meaning that every year, your money loses 2% of purchasing power. Why? Because of how money is in the economy. And that’s why it’s a target you can’t get right down to the tooth.

Tip: FDIC insurance only use to be 100k back before 2008, and after 2008 they temporarily increased to 250k the rate most of us know now. And it has stayed that way for now.

Story: If I were to open a bank account, the feral reserve would require me to maintain a certain amount of my money in the bank to make sure I can cover any cost. And if I cant meet that daily then I would just borrow from another bank. Depending on how much extra money is the market, the cost could be high or low.

How does this affect the Banks Savings Interest rate
1. How do Fed Rates Rise and Fall:
– The federal reserve can’t really decide what the rates will actually be, instead they set a target and influence the rates
– By Open Market operation: meaning they buy or choose not to buy bank securities. The less money the bank has, the higher the rates go and more the feral reserve has the more money the bank has so, the lower rates go. Demand and supply.
2. Demand and Supply: The lower interest rates on loans are then the more attractive it for the consumer to borrow more money and spend more and also for business. Thus banks don’t really have to increase savings accounts rates.
3. Why would bank increase savings account rates
– To attract customer sort of like Wealthfront is doing now
– And also make sure they can borrow at a lower rate to meet the daily reserve
4. How the fed rate works in detail and effects savings
– If banks can borrow money at a meagre rate, they have no incentive to lend you money at a higher rate. For example, if the fed rate rises to 3.0% for example, and that means banks now I have to borrow at that rate then they can increase the savings account rates to decrease the amount of they have to borrow at that high interest, and just pay you less.

5. Are high savings account good or bad
– Depends: its usually sign of a slowing economy where people are going to be saving more money
– Because loans are going to go up, banks can make a profit.

Thoughts:
Since 2008, we’ve seen interest rates very low, and now we’re reaching a high point. I think in the next 12-36 month, especially doing the upcoming presidential election; we will see how things will really change. And the stock market is higher than its ever been, this could be a good sign or it could be a sign of the economy rising too fast. That could be why they are increasing rates.

Bonus Wealth Front: Why did they increase rates ???? answer in the video

* PRO TIP*
INFORMATION IS EVERYTHING

Link:
Articles: https://www.thebalance.com/fed-funds-rate-definition-impact-and-how-it-works-3306122
2: https://www.thebalance.com/fomc-meetings-schedule-and-statement-summaries-3305975
3: https://www.thebalance.com/open-market-operations-3306121

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