By definition, a savings account is designed for businesses and people to save cash for emergencies or urgent expenditures in the future. However, banks and financial institutions, including the Fed, are doing exactly the opposite of what people require to maintain financial security.
The general population does not benefit
The Federal Reserve raised interest rates this week, to cope with the rising inflation rate and maintain the stability of its economy. In simpler terms, a rise in interest rates means that the central bank is printing out more fiat money to distribute to the economy.
When billions of dollars in cash is produced, they are redistributed to the general population through banks and other establishments. However, in most cases, these massive amounts of cash are sprinkled on top of the economy to multi-billion dollar banks, corporations, etc.
Thus, the general population does not benefit from the government’s attempt to recover the economy by injecting cash.
If interest rates rise due to an increase in the country’s inflation rate, the value of cash will go down by that same percentage. For instance, if the inflation rate of a country is three percent this year, the value of cash or the national currency will decrease by three percent. Therefore, it is only logical to provide savings account users and the general population with a three percent interest rate.
The shift to online banking
However, the Fed is not too keen on increasing interest rates for savings accounts. As the WSJ reported on Dec. 14, interest rates offered by major banks in the US average at 0.08 percent, substantially lower than the short-term rate of 0.75 percent targeted by the Fed.
Peter Rudegeair, a WSJ reporter, noted that banks seldom rush in to increase deposit rates to profit from the differences. In fact, in most cases, banks stall at least 12 months before savings account interest rates are changed. He stated:
“But banks generally don’t rush to increase deposit rates, allowing them to pocket the higher spread, or difference, between what they earn on loans and what they pay to customers.”
If cash loses value and practical interest rates aren’t offered to savings account owners or bank account users, they will lose a significant amount of money as the value of cash gradually decreases. It is one of the major reasons behind the shift from traditional to online banking, as platforms like Ally Financial offer a higher deposit rate at 1.1 percent.
Savings in Bitcoin are more beneficial
In all cases, particularly amid market instability, it is most beneficial for users to protect their wealth with a currency or an asset that is not reliant upon a centralized entity to decide their value.
Decentralized currencies like Bitcoin, for instance, has a value that is completely based on the market demand of international investors, user base and exchanges.
Thus, if the value of Bitcoin rises or decreases, users immediately experience an increase or a decrease in their savings based on real market data.