According to Bloomberg News, if you look around on Wall Street, interest rates are surging, but for the everyday savers, it is not much.
The two-year US Treasury yield reflected the biggest one-day jump in more than 10 years in the week ended reaching as high as 1.64%. This is a level not seen since late 2019 and one that will be up from 0.44% at November end. The US 10-year yield, which is a benchmark in global borrowing, topped 2% for the first time since 2019 August.
During mid-2019, Goldman Sachs Group Inc. much sought after Marcus, the consumer bank was extending to individuals a yield that was more than 2% so that they could park their cash in the high-yield savings account. At the beginning of 2020, at a point when the Federal Reserve had dropped the rates of interest by three times, it continued to promote a 2% rate on an eleven-month no-penalty certificate of deposit.
Today, the rates are way lower, although US yields are at the pre-pandemic levels. The savings rate of Marcus is 0.5%, which it has found on its website to be higher than 0.04% of Bank of America Corp’s, and 0.02% that of JPMorgan Chase & Co.’s. Goldman is at par with the high-yielding competitors like Ally Bank and Barclays Plc., in terms of the savings rate, seldom has the average percentage yield dropped so far behind ongoing rates in US Treasury’s $22.9 trillion market.
The high-yield online savings account has become popular in recent years as a way for regular investors so they can keep their cash liquid while getting a superior return at the biggest retail banks in the United States. Throughout the pandemic recovery, ultra-safe options have stayed behind gains on the broad market stock indexes and other assets that are risky.
Bloomberg News reports that with S&P500 Index down by 7.7% to date and the NASDAQ 100, the tech-heavy losing out almost 13%, it is quite likely that people will seek ways to safeguard their assets from further losses. However, this will be true if the risk-free rates that could be earned are way up.
However, with bond traders taking interest rates up, experts are warning that the process will be slower at banks, even for those banks that have promised to pay higher yields to their customers.
When Fed increased interest rates in 2017 and 2018, the online bank accounts extended higher yields followed by slow cuts as there was an easing of policy by the central banks.
In the previous tightening cycles of the Fed, however, inflation was not even above the target of 2%, thereby letting central banks slowly increase rates by approximately 25 basis points at each quarter. However, the kind of predictability at that time was hardly seen this time around. There was an increase in the consumer price index by 7.5% in January in comparison to one year earlier, which is the fastest since 1982.
Bloomberg News reports that for the daily investors that are interested in capitalizing on the higher US yields, the options are not easy as a savings account. There are few brokerages online that extend help in offering a way to get access to the Treasury securities through the secondary market, although TreasuryDirect, is the government’s marketplace. Exchange-traded bond funds, which is a popular choice among investors that retail could drop in value. When it comes to investing and locking your money in a financial product, an important aspect is timing.
