Bank Savings Interest Rate

In the U.S., the bank savings interest rate is the amount of interest banks pay depositors in exchange for lending them money. The rate fluctuates with the federal funds rate which the Federal Reserve Banking System, or the Fed, establishes for member institutions. The federal funds rate is the interest member institutions charge one another for 24-hour loans to correct federal funds deficiencies. The Federal Reserve requires banks to keep a certain amount of cash reserves on account at the Fed as insurance against panic runs. Banks routinely borrow reserve funds from each other at the end of the day to make up deficits caused by withdrawals and other transactions. The federal funds rate determines the bank savings interest rate financial institutions can afford to pay depositors. Lower federal funds rates translate into lower expenses for member banks. The less interest on borrowed funds member institutions have to pay one another, the more they can make available to pay depositors.

The money market is essentially a system of financial activity transacted in a global economy. Money literally makes the world go around; and financing the world's goods and services determines the rate at which domestic and foreign banks can borrow or lend funds. A bank money market rate, determined daily by fluctuating interest imposed between financial institutions globally, is the amount of interest banks pay depositors on funds deposited into a bank money market account. Banks, credit unions, and other financial institutions which issue money market accounts (MMAs) use depositor funds to invest and diversify portfolio holdings at home and abroad. Simply put, when banks make money from investments, depositors earn more interest. The bank money market rate goes up or down depending on earnings from investments.

Depositors seeking to earn a higher bank savings interest rate would do well to consider opening a bank money market account. Not to be confused with a money market mutual fund, which collectively invests shareholder funds to gain added returns; an MMA pays interest on depositor funds double the earnings of a regular passbook savings account, from 2% to an average of 4%. At an average of one percent, regular passbooks just can't compete with the high yield bank money market rate. But the advantage to passbook savings is the high liquidity of funds. Depositors can withdraw money on demand without paying penalties, there are no maturity dates, and usually no minimum balances are required. A regular passbook with low bank interest savings rate can also be linked to an existing checking account to afford overdraft protection. For depositors who require quick, fast, and in a hurry access to ready cash, low- or no-earning savings make plenty of sense. But for those savers who want to ensure funds are available, not just for easy access, but for future financial security, other options exist.

Although low-interest savings accounts are still essentially wise and prudent choices, deposits don't work nearly as hard as those invested in a bank money market account. But earning nearly double the interest also doubles the risk. Deposited funds, while FDIC-insured, are tied to the global stock market and can fluctuate on a daily basis. In the case of a catastrophic financial event or panic, the Federal Deposit Insurance Corporation promises to replace depositor funds up to $100,000. As a hedge against potential financial loss, many wise MMA holders diversify portfolio holdings by combining the high yield MMA with long-term savings vehicles: Certificates of Deposit (CDs), Individual Retirement Accounts (IRAs), Roth IRAs, and employer supported 401ks. Diversification is always a wise choice for those who don't want to put all their nest eggs into one proverbial financial basket. Of course, the only true security against catastrophes of any sort is having one's confidence firmly placed in God. "Though an host should encamp against me, my heart shall not fear: though war should rise against me, in this will I be confident For in the time of trouble He shall hide me in His pavilion: in the secret of His tabernacle shall He hide me; He shall set me up upon a rock." (Psalms 27:3,5)

A high-yield bank savings interest rate, coupled with FDIC backing, makes MMAs solid investments, even in the face of a sagging economy and increasing unemployment woes. MMAs are also highly liquid and the potential added earnings can give depositors a good return on relatively minimal initial deposits. In addition to higher earnings, bank MMAs also offer check writing privileges and debit cards, which make cash as readily accessible as a low-interest passbook savings. Because financial institutions invest depositor funds, restrictions on withdrawals may be imposed and higher balances may be required. High yield bank money market accounts can be opened and managed online, 24 hours a day and seven days a week.

To find higher savings yields, depositors can go online to financial analysis websites, log onto banking institution and credit union sites, or make a personal visit to local branches. Rates are reported daily, weekly and monthly; and depositors can easily make comparisons before determining which bank savings interest rate suits particular financial needs. As the bank money market rate continues to increase, depositors may find regular passbook savings accounts a thing of the past. Savers will cease to be content to deposit funds, only to have them earn the least amount of interest. No one can afford not to have hard earned cash work as hard for them as they do for it.

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