Finding the best money market rates available for your savings can help you earn a lot more interest than settling for whatever your local bank pays you. But lately, even the best rates have left savers feeling shortchanged. What’s holding money market rates back?
How low can they go?
Before the financial crisis, savers could expect decent returns on their cash. Money market rates of 3%, 4%, or even 5% were available to those who were willing to do a little digging.
But those 5% rates are long gone, and nowadays, you may struggle even to get to 0.5%. Currently, a few banks, including American Express Company (NYSE:AXP) and Capital One Financial Corp. (NYSE:COF), offer between 0.75% and 1%, and a few special limited offers from smaller banks can get you above the 1% mark in some limited circumstances.
Unfortunately, among most big national banks, the news is far worse. Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC) have rates of less than 0.1% on their money market accounts. Minneapolis-based regional powerhouse U.S. Bancorp (NYSE:USB) offers similarly low money market rates.
Where’d the income go?
The big problem for savers has come from the Federal Reserve, which maintains a firm grip on short-term interest rates. In order to try to help the U.S. economy to come out of recession, the Fed started lowering its Federal Funds rate in late 2007, taking the rate from 5.25% as of August 2007 to a range of 0% to 0.25% by December 2008. That big drop has pulled even the best money market rates down with it. Moreover, since 2008, the slow pace of recovery has led the Fed to keep interest rates right where they are, and at least for now, there’s no relief in sight for savers. Many experts now expect the Fed to keep rates low throughout 2014 and into 2015.