Good news for depositors. Online bank her Ally is raising interest rates on high-yield savings accounts. Also.
On Wednesday, the annualized yield (APY) of the Ally Savings Account rose to a record 2.25% from a 2.10% set within two weeks.
“As part of our commitment to offering competitive rates, we are actively monitoring market conditions and other factors,” Ally told customers in an email Tuesday. Based on that, we’re raising your rates and now you can get even more out of your savings.”
This historically high rate is available for “all balance tier” savings accounts, according to the email.
Amid the doom and gloom of inflation and fears of a looming recession, the constant stream of APY rising emails from allies in recent months has given account holders much-needed affirmation for their wallets. provided exciting news.
Ally Bank has announced at least 13 APY increases since May, according to Money calculations.
Other bank online accounts are seeing a steady rise in APY. A notable example is Goldman Sachs’ Marcus, whose high-yield online savings rate reached 2.15% at the end of September. This is up significantly from his 0.5% of his APY seen this spring.
Why the Savings Rate Is Rising
In a roundabout way, there is inflation thanks to higher yields on savings accounts.
The U.S. central banking system, the Federal Reserve, is acting aggressively to contain skyrocketing prices. The primary way to do this is by raising another interest rate called the Federal Funds Rate. While the ultimate goal is to control inflation, higher federal funds rates have all sorts of ramifications, including higher APRs for credit cards and loans, fewer jobs available, and more.
Many economists fear that aggressive Fed rate hikes could plunge the economy as a whole into recession. A more welcome side effect? Higher yields on savings accounts.
“The federal funds rate controls the cost of borrowing money in this country. When it is high, banks can make more money by lending out customers’ deposits at a higher rate,” he said. Laura Cuber, a certified financial planner, told Money in a recent issue of Dollar Scholar. “In turn, they offer customers higher interest rates to encourage banks to keep their deposits.”
This trend is most noticeable with online savings accounts from banks such as Ally and Marcus. These banks typically have much higher rates than those offered by traditional brick-and-mortar institutions because of their low operating costs and the need to attract customers. However, the savings rate is rising across the board.
According to the latest FDIC figures, the national savings rate is 0.17%. That’s a paltry amount compared to Ally’s current rate, but a significant increase from just a few months ago. For example, in July the rate was 0.10%.
Going forward, the Fed will likely continue to hike rates to keep inflation in check, and has already hiked rates five times in 2022.
But then you can count on another email from Ally saying APY is going up again.
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