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The Federal Reserve met this week and decided to lower the interest rate at which bank can lend each other money to 4.5%. With fears of a continued slump in the real estate market and an overall slowing in the economy, the Federal Reserve have dropped rates from 5.25% APY to 4.50% APY through a series of two rate cuts this year. Most people think that a drop in the federal fund rates won’t directly affect them, but that’s certainly not the case. One of the places that this is very evident is through the interest that you earn in your savings accounts.

You don’t see it so much in mortgage and credit card rates since they are more related to long term bond rates than the short-term fed rates, but savings rates are very correlated to the federal funds rate. With the recent drop in the short-term federal funds rates, many online savings banks have dropped their interest rate to correlate with this new lower rate.

One of the largest online banks, ING Direct dropped their rate from 4.30% APY to 4.20% APY. They also dropped the rate on their electric orange checking account from 3.50% APY to 3.25% APY. They have dropped the rates of on their certificates of deposit as well. Most of their CDs which were sitting around 5.00% APY are now at 4.80% APY.

A couple of the other major banks have dropped their savings rates as well. Countrywide, the nation’s leader in home loans, have dropped their savings rate from 5.50% APY to 5.35% APY. GMAC Bank has dropped the rate of their money market account to 4.50% APY from 4.75% APY. Bank of America dropped their DoW Money Market Savings fund from 4.45% to 4.29%.

Some of the smaller banks have also changed their rates to remain profitable with this new lower funds rate as well. Presidential has dropped the rate on their premier savings rate to 4.60% from 4.90% APY. EverBank had amazing CD rates
at 6.01% but have since dropped them to 5.51% APY. Zions Bank lowered its rates on its Deseret Money Market Savings account dropped their rate from 5.51% APY to 5.40% APY.

As time goes on it’s very likely that some of the other major online savings banks such as HSBC Direct, E-Loan, E*Trade and Emigrant Direct will drop their interest rates as well to maintain profitability during this period of lower federal funds rates.



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