Some online savings accounts known for paying very high interest are pulling back on their generous offers.
Goldman Sachs (GS) Marcus savings accounts and Ally (ALLY) have lowered their rates from 2.25% to 2.15% and from 2.20% to 2.10%, respectively. For Ally, this represented the first decrease since October 2013, after 20 straight raises.
Over the past four years, online savings accounts have ramped up their interest payouts as the Federal Reserve raised its interest rates. These days, many online-based accounts pay in excess of 2.00% in annual percentage yield, a number that is over 20 times the national average of 0.10%, according to Bankrate.
They can afford to pay more as banks can make more money on deposits in higher interest-rate environments, and online-based banks have low overhead. For many of these banks, having high yields is a critical marketing tool to attract deposits.
A Goldman Sachs spokesperson told Yahoo Finance that the change was due to market conditions, but didn’t elaborate further.
Ally provided more insight into its decision.
“Ally Bank constantly monitors the economic environment and plan for where we think things are headed,” said spokesperson Justin Nicolette. Ally noted that interest rates are on the downswing and projected to fall, something evident after recent comments by the Federal Reserve, though the central bank has held rates steady instead of cutting them.
At the same time, one financial institution actually raised its rate recently. Wealthfront’s Cash account, which is FDIC insured, pays 2.57%, one of the highest rates in the country, according to Bankrate.
It’s all about the Fed
“Based on these factors, we lowered the annual percentage yield (APY) on our Online Savings Account Tuesday, June 25 from 2.20% to 2.10%,” said Ally’s Nicolette.
“As interest rates fall, savings accounts will be susceptible,” said Greg McBride, Bankrate’s chief financial analyst. However, McBride noted that competition is still fierce, even if the mere suggestion of a rate cut has been enough to send some banks’ rates down 0.10 percentage points.
Yahoo Finance reached out to other online banks, including Synchrony (2.25%), American Express (2.10%), Barclays (2.20%) HSBC Direct (2.30%), Citizens (Access) (2.35%), CIT (2.40%). None of these banks have changed their interest rates yet.
“While we are always monitoring market conditions, we are comfortable with the current level of our savings rates," said Robert Sherman of HSBC.
CIT noted that it “considers a number of factors when determining its interest rates,” and that “[m]aintaining a competitive return for our customers to help them meet their financial goals is one of our priorities.”
Citizens declined to comment on whether it had plans to change its rate for its Access product and Barclays said it probably would not comment on forward-looking plans for setting rates.
The others did not respond to comment on their plans by publication time.