Ask HN: Checking Interest Rate vs. Mortgage?
Why isn’t the interest rate on my savings and checking account increasing as fast as the mortgage borrowers rates?
a) in marketplaces without a lot of margin, increases in costs are quick to make it into the consumer experience, but decreases in costs are not so quick. Mortgage rates rise faster than they fall, and savings interest rates fall faster than they rise.
b) mortgage rates have a fast feedback loop, most US mortgages are destined to be sold in the bond market, so lenders don't want to make loans at rates that are under the market rate; this brings rates up quickly. Furthermore, borrowers have bigger incentives to shop around on mortgage rates, so lenders can't keep rates higher than the market rate for too long or they'll lose loans to competitors. Some depositors do chase higher savings rates, but changing checking accounts is a lot of work, so there's stickiness there. A lot of depositors put more value on other things than savings rate because somehow major national banks that require big relationships to give you 0.02% interest attract deposits.
c) as troydavis mentions, you might not have considered term length. My savings account seems to be tracking ok with money market funds (0.70% vs 0.75%), although I see some online focused banks with higher rates (1.0%). IIRC, savings rates of even 0.5% were hard to find a year ago, so you could say savings rates have doubled just as mortgage rates have doubled, but it's kind of meaningless... they're both increasing in their own ways.
Today:
- short-term savings account rate is ~1%
- long-term mortgage rate is ~6%
- the ratio is 1:6
Early 1980s:
- short-term savings account rate was ~8%
- mortgage rate was ~16%
- the ratio was 1:2
What was different in the early '80s when mortgage rates were sky high, but savings account rates seemed to keep pace?
If you could compare equal term lengths - compare a theoretical 1-day mortgage to a checking or savings account, or compare a 30-year bank CD to a 30-year mortgage - the rates/yields would be much closer.