Disappearance of deposit interest rates continue steadily

Ever since the financial crisis began deposit interest rates have continued to decline and are steadily on its way out. The Fed Reserve had started cutting down on the interest rates in order to stimulate the sluggish economy and put it back on track.

It is a well-known fact that deposit interest rates are a paltry sum but right until now there were a few opportunities for the shy investor to make some money on cash that is parked temporarily. Investors could park their money in certificates of deposits, checking accounts, savings accounts and money market accounts, and earn a decent interest. But ever since the financial crisis began all that seems to have changed and the Fed Reserve has started cutting interest rates to kick start the economy once again. Before this financial crisis it was not such a costly affair not to know where to invest your money.

A Certificate of Deposit or a CD on an average paid 3.81% APY or annual percentage yield in 2006. The same CD fetched an average of 2.71%. However, a one-year CD today has an APY ranging between 0.50% and 1.30%.

During 2006, when the interest rates were high, some of the top yielding online savings accounts that were recognized by Money was HSBC, ING Direct, Emigrant Direct etc. HSBC Direct then paid 4.80% with a minimum $1 investment, ING Direct had an introductory rate of 4.75%, and Emigrant Direct had offered 4.24% interest on savings. Today the same banks offer a mere paltry sum as interest. HSBC offers 0.90% on its online savings account, ING has the Orange Savings Account that pays 1.00% as interest, and the American Dream Savings Account by Emigrant is much less dreamy and offers 0.90%.

Earlier on, online savings accounts meant higher rates where the business models were based on ‘quid pro quo’ logic. Then, the accounts involved various stipulations regarding where and how customers could bank and this reduced the overheads. Banks would also reward customers with higher rate of interest. But, the long-term analysis of the banking behavior by customers with regard to online-only accounts has taken a turn and banks and financial institutions are now viewing these customer-value models differently.

Earlier on, customers who had fewer face-to-face interactions were viewed as appealing. But now institutions are trying hard to get the customers back into their branches instead of keeping them in the cyberspace.