Almost everyone wants to earn as much interest as possible with their savings account. The amount of interest you earn on your savings much depend on a variety of factors—tax paid, interest charges, economic growth, inflation rate and so on. Although many times, when these savings are adjusted for inflation, the actual rate of return accrued by today’s savings accounts is usually negative. The average return yield by many savings account is between 0.06%-1.0% APY (annual percentage yield). This puts many people in a dilemma of having to substantiate between losing purchasing power or losing liquid and security with their savings.

How Savings Account Rates are Determined

Based on principle, banks are not supposed to provide a higher rate on their deposit accounts than they charge people on their loans. This protects the bank from losing money and allow it to compete effectively in the market. In fact, many savings account rates are typically below 1% APY because the Federal Reserve choose to give cash to banks through its discount window. Banks are also supposed to lend to each other at the interest percentage stipulated by the federal funds’ rates as well. This means, when both the discount rate and federal funds rate are set below 1%, banks shouldn’t raise this rate to get cash from its depositors.


Real Rate of Return

As a rule of thumb, it’s wise not to focus much on the actual interest rate offered on your savings account to determine its returns. Sometimes the interest rate fluctuates due to the level of inflation rate rise experienced in that same particular year. Instead, stay focused on the real rate of return to substantiate how the purchasing power of your personal savings is behaving over time. A savings account nominal rate can fluctuate anytime, hence can’t be depended upon.

In summary, it’s evident that yields acquired on savings accounts are disturbingly very low. This is because the interest earned on savings depend on several factors such as tax charges, economic growth of a country, inflation rate and so on. However, it’s still possible to get a higher interest rate than that provided in a typical savings account. Simply visit your local bank and sign up for a high yield savings account and watch your money grow big every year. If you experience any problems or have any questions, talk to your bank, and they’ll be happy to assist you with any query you may have.