Savings Account Interest in 2013: Thanks For Nothing, Banks

Interest penniesWe're only half a month into 2013, but already, you may have started giving up on some of the resolutions you made for the new year. If you're a retiree living on a fixed income, we suggested one important resolution would be to make sure you're getting a decent interest rate on your savings so you don't have to dip into your principal to get by in 2013.

Well, banks are not making it easy to follow through on that one.

In the face of pressure from the Federal Reserve, banks have been cutting their savings rates for years. Since early 2008, the average rate on an insured bank money market account has plunged from above 4 percent to just 0.5 percent.

The impact of falling rates has been devastating for many retirees, with monthly interest income plunging nearly 90 percent.

Moreover, even once you think you've found a relatively good deal, you can't count on it lasting for long. For instance, last year, TIAA Direct offered online savings accounts paying 1.25 percent. Earlier this month, though, TIAA cut that rate to 1 percent. It also imposed some tight new restrictions on managing your money, including imposing new $5,000 limits on ACH withdrawals.

TIAA Direct is hardly the only bank to make rate reductions lately. Capital One's (COF) ING Direct, HSBC Bank (HBC), and CIT Bank (CIT) were just a few of the many banks that cut their savings rates in 2012.

What Comes Down Must Go Up, Right?

For years, investors and savers have believed that falling interest rates would eventually have to hit bottom. But it's taken a lot longer than they expected, and the downward trend went far further than anyone had initially expected.

Still, some signs are emerging that low rates might finally come to an end. Some dissenting members of the Fed have argued that rates will need to rise sooner than other members want in order to prevent bad economic results like higher inflation. If the economy recovers more strongly, then that will be the time to look for rates to rise.

Until then, though, the key is to make the best of a bad situation. For instance, Sallie Mae Bank (SLM) offers 1.05 percent currently, and although there's no guarantee it won't be the next bank to cut its attractive rate, you should be able to find other banks that will take its place if it sends its rates down hard.

Even if you find your rate dropping on your savings account, it's still worth the effort to find above-average interest rates. The extra money can mean the difference between living off your income and having to tap into principal to make ends meet.

Motley Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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top 1% are doing great. We are still the richest country on earth but all the money is being funneled to top 1%. If they shaed it would have a boomoimng economy because everyone would have a lilttle extra money to spend. They do a great job of calling it class warfare, A good defense has always been a good offense. Greed is hurting this country, you cant take it with you and judgement day will arrive. If everyone made a living wage the world would be a better place. Hoarding by 1% does not make this a better world, trickle down will work but it has to be fair. Why should the poor citizens children die protecting the rich in this country? We are better than this, I know we are. Keep what you need but more than 100 times what your employees make is not exceptable in the eyes of the Lord. Remember it will be easier for a camel to go thru the eye of a needle than a rich man to get into heaven.

January 18 2013 at 9:30 AM Report abuse rate up rate down Reply

Why put money in the bank and get practically nothing in return...its like you are loaning money to the banks. instead put your money in utility stocks some of which are currently paying 5% or more per year....utilities are some of the safest investments and seldom go out of business since no one will want to sit in the dark or have no heat in the house.....yolu would be getting dividends checks every 3 months and overtime some of the stocks will increase in value and even raise their dividends....what could be better?

January 18 2013 at 7:31 AM Report abuse +2 rate up rate down Reply

Try They have a product called a Rewards Checking account. There are no fees with the account. All you have to do to earn 2% on your balance (no matter how small or large) is to make 10 debit card transactions a month. You can go to a self checkout lane and purchase 10 separate cans of cat food or dog food if you have pets. That is all there is to it. And they give you a funky looking debit card with a horse on it. The bank is part of a reputable bank, First Bank of the Wichitas of Snyder, Oklahoma. It's worth a shot and the online application is paperless. The minimum deposit is only $1 to start. These days, it is really difficult to find any bank that will pay anything above 2% without major stipulations. For a checking account, this account is a good deal AND they rebate up to $25 in foreign ATM fees when you make those 10 debit card transactions each billing cycle as well. Go check it out!!!

January 18 2013 at 1:17 AM Report abuse rate up rate down Reply

now (and the last couple years) is the time to borrow to make money, not save.

January 17 2013 at 10:59 PM Report abuse -1 rate up rate down Reply
1 reply to vlady1000's comment

And where do you expect people to borrow from?????? Ihave tried every bank that there is and NONE are giving you anything!

January 28 2013 at 10:22 AM Report abuse rate up rate down Reply

Margins .the difference between what banks earn and what banks pay in interest... have been shrinking the last three years as the fed holds down rates artificially.. banks have a lot more deposits than they can lend out because there is no loan demand --no loan demand means the banks have little demand for your deposits anything else and demand for money drives price ..and until loan demand returns interest rates on deposits will remain low. Money is no different than any other commodity...

January 17 2013 at 9:27 PM Report abuse rate up rate down Reply

The low Interest rate is one of the reason I will not use a Bank a Credith Union gives me less problems and less fees

January 17 2013 at 7:09 PM Report abuse +2 rate up rate down Reply

Ah, the wonderful banks that we bailed out - they get to borrow from the Gov at practically zero and, in turn, they pay out practically zero but charge a high rate on your credit card. That's the American way, protect the banksters and screw the public.

January 17 2013 at 7:00 PM Report abuse +4 rate up rate down Reply

How come they don't lower the interest rates on credit cards???? Only on what they give us! It should work both ways>

January 17 2013 at 5:42 PM Report abuse +3 rate up rate down Reply

Banks? Like dealing with a thief. I switched to a credit union over a year ago and have never been happier!

January 17 2013 at 4:38 PM Report abuse +3 rate up rate down Reply

Ya know, if everybody went to a credit union instead of a bank, where the depositors OWN a piece of it, you wouldn't have anything to complain about!

January 17 2013 at 4:22 PM Report abuse +4 rate up rate down Reply