Why is the interest rate you pay so much higher than the interest you earn?

SAN FRANCISCO (KGO) — Why are you paying so much interest, yet your savings account receives so little? There seems to be a big gap between the interest rates you Pay and the interest rates you to have with a deposit account. Why is that? Today, Michael Finney from 7 On Your Side has an economics lesson for you.

Check out a sample of the going rates for home mortgages published by Bankrate.com, and even those with good credit would be offered rates of up to 5%.

Look at the rates banks pay for “savings” and the rates hover around 0.5-1%. The best 7 On Your Side found was 1.15%. Many physical banks pay even less.

This spread does not go unnoticed on Michael Finney’s own Facebook page.

Wendy says, “Banks keep you coming and going.” Jerry’s Ads: “Even if the rates go up, it would be so tiny.”

What’s going on?

7 On Your Side asked Greg McBride. He is Chief Financial Analyst for Bankrate.com. He says comparing savings rates and mortgage rates is like comparing apples and oranges.

“Savings rates are tied to short-term interest rates and so they’re much more dependent on the Federal Reserve raising short-term interest rates. They once did that in a big way. total of a quarter of a percentage point,” McBride said. “Mortgage rates, on the other hand, are tied to long-term interest rates, like those on long-term government bonds. Those yields have risen significantly since the start of the year.”

So what should a consumer do? Compare the prices. Look for a low mortgage rate when buying a home or refinancing, and shop locally and online to get the best rate for your savings account.

“Most banks are paying next to nothing and sitting on a mountain of deposits, so they’re unlikely to pass on higher rates quickly,” McBride said. “Many online banks, on the other hand, pay much higher savings rates – around 10 times higher than what the average bank pays – and they will be quicker to pass on those higher rates as savings rates rise. interest increase.”

7 On Your Side asked why online banks pay more and McBride pay more to attract customers, while physical banks rely on their branches to attract customers.

Check out more stories and videos from Michael Finney and 7 On Your Side.

Do you have a question for Michael and the 7 On Your Side team? Fill out the form HERE!
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Stephen V. Lee