How Are Savings Account Interest Rates Determined?

Savings account interest rates are set by the individual bank offering the account. The bank can pay you this interest rate because it is using a portion of your funds for investments and loans, increasing its own income. When the bank is earning a lot through this technique, interest rates may be high. Otherwise, banks will cut savings account interest rates.


Following the financial crisis of 2007, many banks made moves to reduce their expenses and increase their income. They were suffering from defaulted loans and reductions in their investment income. To reduce expenses, banks slashed rates on savings accounts, CDs and annuities. To increase profits, they raised the amount of money needed to maintain an account, and some even started charging for standard banking services that were previously free. While it is possible to escape low savings rates by going to another bank, it is common to see this type of trend throughout the whole banking system. It is rare to find one bank offering significantly higher rates than another, so consumers are generally stuck with the "going rate" the market is offering at any time.

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