Savings finally starting to pay off

Interest on bank deposits inching up with Fed moves, competition

NEW YORK — Slowly, but surely, being a saver is paying off again.

For years after the recession, banks paid next to nothing on deposits — much to the detriment of savers everywhere. Now, banks have increased lending and need more deposits, so they’re willing to pay higher interest rates.

The big publicly traded banks are paying roughly 0.40 percent on their deposits right now, which is up from 0.24 percent two years ago, according to an October report from Autonomous Research.

A one-year CD is now paying an average of 0.63 percent, which is up from 0.45 percent two years ago. That’s according to depositaccounts.com.

An interest rate of 0.40 percent or 0.63 percent may not sound like much, but analysts expect that banks will continue to increase payouts on deposits as competition ramps up.

“We have been waiting for this to happen for a while now,” said Mark Hamrick, senior economy analyst at BankRate.com.

During the financial crisis, the Federal Reserve lowered its benchmark interest rate to near zero, and kept it that way until December 2015. While the Fed’s move made the cost of borrowing substantially cheaper nationwide, it had a secondary effect of cutting the interest rate banks were paying on deposits. Seniors got hit hard since they tend to keep their money in low risk products like money markets, CDs and cash.

The Fed’s main interest rate is now 1.25 percent, and is expected to be raised to 1.5 percent the Fed’s December meeting. As the Fed raised rates, banks initially were happy to charge borrowers higher rates while keeping the amount of interest they were paying on savings accounts and CDs low.

Banks take on deposits in order to turn around and lend that money out. The more demand there is for loans, the more deposits a bank needs.

Online-only banks, which typically pay the most for deposits, are paying even more these days. Goldman Sachs’ online savings account GS Bank pays an interest rate of 1.29 percent on its savings account, with no minimum deposit. For those able to lock up their savings for a longer period of time, GS Bank is paying 2.37 percent for a five-year CD, with a minimum $500 deposit.

Ally Bank is paying 1.25 percent for deposits to its online savings account. So is American Express, through its Personal Savings account.

The largest of the banks are still being stingy, however. JPMorgan Chase is paying only 0.04 percent on a standard savings account, Bank of America is paying 0.03 percent and Wells Fargo is paying 0.01 percent.