Bank Rates Take A Turn for The Better

Written by Richard Barrington

Financial Expert

Edited by Kristin Marino

Managing Editor

Bank rates took a rare and welcome step toward higher territory in the second quarter of 2017, with savings account rates and money market rates both moving upward in the latest MoneyRates America’s Best Rates survey. Rates moved up across all categories of bank sizes and account types, an encouraging sign that this rise in rates is indicative of an industry-wide trend rather than isolated to specific segments of the market.

The rate upturn is especially welcome for savings accounts, which had previously seen their average rates drop for four consecutive quarters. Despite that losing streak, savings account rates remain higher than money market rates, though money market accounts did close the gap during the second quarter.

An added positive aspect of the rate upturn is that it came while inflation has been drifting back into negative territory. Consumers don’t really win if bank rates are forced up by higher inflation – when that happens, they are merely scrambling to keep pace with rising prices. However, it is a clear victory for consumers when bank rates rise during a period when inflation is flat or negative.

As always, deposit accounts are somewhat split between the haves and have-nots, with online accounts yielding significantly more than traditional, branch-based accounts. Online accounts widened that advantage during the first quarter.

Note that while the rates for Synchrony Bank and SFGI Direct appear to be tied, this is due to rounding; Synchrony Bank’s rate was actually higher by a small fraction of a percent.

Appropriately for a quarter that saw an overall rise in savings account rates, the top banks led the way, with the seven highest-ranked banks in this survey increasing their average rate during the second quarter. There are now nine banks offering rates of 1 percent or better, meaning that consumers cannot only find higher rates but can actually choose from a range of different banks in doing so.

Online savings accounts continue to enjoy a significant rate advantage over their traditional, branch-based counterparts. The average rate on online savings accounts during the second quarter was 0.656 percent, roughly nine times the average rate of 0.073 percent offered by traditional savings accounts.

There were also rate differences according to bank size, though these were less pronounced than the difference between online and traditional account rates. Curiously, for over a year, there have been rate advantages at either end of the size spectrum, with large and small banks each offering better rates than medium-sized banks. Small banks led the way with an average savings account rate of 0.372 percent, while large banks offered an average rate of 0.229 percent, and medium-sized banks offered an average of 0.100 percent.

As was the case in the savings account category, the top-paying banks in the money market account category also led the trend towards higher rates, with four of the top five banks on the above list raising their rates during the second quarter. Note that on the above list, apparent ties between 3rd and 4th place and between 5th and 6th are actually due to rounding, with the leaders separated by a small fraction of a percent.

With the rate increases during the second quarter, the number of money market accounts in the survey offering rates of 1 percent or better doubled from two to four. This offers money market customers a wider choice of higher-paying banks.

Though the gap between online and traditional, branch-based accounts is not as large for money market accounts as it is for savings accounts, it is still significant. Online money market accounts offered an average rate of 0.561 during the second quarter, more than five times better than the average of 0.100 percent for traditional accounts.

Rate trends across the bank size spectrum do not follow the same pattern for money market accounts as they do for savings accounts. With money market accounts, rates vary inversely with bank size. Large banks offered the lowest average money market rate at 0.177 percent, closely followed by medium-sized banks at 0.179 percent, with then a larger jump up to the average rate for small banks of 0.248 percent.

The rates in this study represent the average rate offered throughout the calendar quarter by banks in the MoneyRates Index. This is an index of 100 banks representing a cross-section of the industry, with 50 large banks, 25 medium-sized banks, and 25 small banks.

The across-the-board upward movement in rates during the second quarter was encouraging. Now the next step for bank rates is to see if they can sustain this positive momentum for more than a single calendar quarter.