How Do You Understand Interest Rates On Savings?
The interest rate on a savings account is a function of how much money the bank believes that it can pay you and still make a profit off of the money in your account. When you open a savings account with a bank, you are essentially lending them your money but reserving the right to claim the funds at any time. Banks are usually lower-risk borrowers due to their financial position and their legal powers to lend out far more money than they possess in assets due to fractional reserve lending laws. Monitor the Federal Reserve interest rate, which is one of the primary drivers of how much interest banks pay out in their savings accounts. When the Federal Reserve adjusts rates upward, interest rates on savings accounts follow suit, and likewise if it adjusts the rates downward. Determine if the banks you are interested in offer special savings accounts to valuable customers or in return for maintaining a high account balance for a set period of time. Banks prefer that you keep as much money
