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Ask the expert: Will the best savings accounts today hold onto this advantage?

July 01, 2011

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I've found a bank with a pretty good savings account rate - considering how low rates are generally. My question is this: will the banks with the best savings accounts now be the ones with the best savings accounts when rates are higher? That is, will the rate advantage I have now tend to float above the average rates by about the same amount?

A: With rates on savings accounts near zero - the national average was down to 0.14 percent as of the last week of June, according to figures from the FDIC - some banks stood out from the crowd by offering savings accounts with rates about a full percentage point higher. The question is: Will this rate advantage be sustainable? That is, will banks offering one percent more in today's low interest rate environment be likely to have a 6 percent rate if average rates rise to 5 percent?

The answer is that part of today's rate advantage might be sustainable, but other banks may also have an advantage if conditions change. Consider these two components of a possible rate advantage:

  • Cost advantages. Some banks are able to offer better rates because they operate with lower overhead. For example, a MoneyRates.com study found online banks offering generally higher rates on savings accounts. These cost advantages should be sustainable even as economic conditions change.
  • Other business lines. With the lending business pretty stagnant, banks have less incentive to attract deposits. If lending takes off again though, some banks may suddenly raise rates to attract more deposits, so they can participate more in the lending market.

In short, some advantages are sustainable, but a changing economic environment could shake up the rate picture enough that different savings accounts start to rise to the top. The answer is to keep making comparisons among banks - especially if you see rate and economic conditions changing.

Got a question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to the "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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