sapphire96 wrote: ↑Thu Sep 24, 2020 1:33 pm
What does not make sense is that I remember Ally offering almost 1% on their savings account when the Fed interest rates are at zero before they were raising rates a few years ago. Do I dare ask why is it different this time?
My theory is that some banks can just borrow their cash needs on the money markets, so don't bother too much with offering good yields to attract individual deposits. Some banks either have to pay more to borrow (maybe Ally, being a repackaged GMAC), or they can make direct use of deposits (Discover bank lending to Discover card holders), so they offer some of that margin to savers to attract funds. Of course, this latter case is how banks are _supposed_ to work
Anyhow, what this makes me wonder is if either the money markets are just _too_ cheap to pass up, so Ally/Discover/others just can't afford to pony up yield for what is effectively marketing. Or, worse, what if the part where they make their margin simply isn't working? Like what if people are reining in their debt spending, or what if card vendors are reining in their limits to reduce their risk exposure? Either way, less need for deposits to fund those loans.
Unfortunately, there's a bit of There Is No Alternative, here. I could hold cash, but I have to hold that cash somewhere, might as well hold it somewhere that pays slightly more than my other options. I could eventually shift it back to the brick-and-mortar bank I used previously, who had great in-person customer service ... but also had obvious ideas about getting my money into places where they could play with it and extract fees, and I'd rather not deal with someone who operates that way.