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Ally Bank's Interest Rates Were Just Cut for the Fourth Time This Year

Ally Bank has cut interest rates again, only a month after its last cut. Now, MONEY’s best online bank (for the second year in a row, thanks to its superb customer service, user-friendly mobile app and competitive rates) has savings account interest rates of 1.6%.

In an e-mail to customers late on Thursday, Ally announced that “the Annual Percentage Yield (APY) on your Online Savings Account is changing from 1.70% APY to 1.60% APY for all balance tiers. Your new APY is effective 12/20/2019 and will show online in your account details on 12/21/2019.”

As we noted back in October, there has been a bit of a competition among online banks to see who could give the most competitive interest rates. The competition pushed Ally’s savings rate as high as 2.2% in the recent past.

Online banks have less financial overhead so they can give more back to their customers, but they are ultimately bound by the sound laws of the economy as all other banks. This year the Federal Reserve has been cutting interest rates, partly in order to mitigate the effects of the ongoing trade war with China, and to stave off warning signs of an upcoming economic depression. Interest rate cuts are intended to boost the economy by making it easier to secure a loan, but this sort of move does tend to create ripple effects, and Ally has had to respond in kind.

The upshot of all this is that your money is now going to earn you less money. As we noted, “if you had $10,000 in an Ally account when the rate was 2.2%, you’d earn $220 in interest over the course of a year. But when the rate is 1.8%, your return is only $180.” And now, your return will only be $160.

It’s not just Ally Bank that’s cutting bank account interest rates, of course. Unfortunately for savers, it’s an industry-wide trend, based on moves made by the Fed.

Will there be further interest rate cuts? Only the Chair of the Federal Reserve Jerome Powell knows for sure.