The Reason Bank Interest Rates Have Plunged


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You’ve probably heard of high-yield savings accounts that offer a 3% interest rate. Yes, 3% is supposed to be a high yield. The national average for savings accounts is .37%. Considering inflation is 5%, and that’s manipulated, it means you are still losing at least 2% of your money.

But it wasn’t always like that.

On your screens right now is the historical average CD rate from 1984 – the present. Yes, back in 1984, the 6-month CD interest rate average was over 9%. the 5-year CD was almost 2%.

So, can’t they give us higher interest rates?

The thing is, they don’t have to. There is no regulation requiring them to offer higher interest rates to their depositors.

More importantly, they know that people will have no choice but to put their money in the bank. Our financial system is designed to discourage physical cash transactions.

However, banks argue that it’s a matter of investment maturity.

As you know, banks don’t keep your cash in a safe when you deposit. They invest that in different assets. A huge chunk of their investment is Treasurys, the majority are long-term Treasurys. Of course, banks need to get a yield on their assets that is greater than the cost of their deposits including the overhead of administering the program, employing people, etc.

They can’t just sell the investments they bought last year. They need to wait for it to mature if they want to maximize the yield.

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