Good news for savers: Online bank Ally is raising the interest rate on its high-yield savings accounts. Again.
On Wednesday, the annual percentage yield, or APY, on Ally savings accounts ticked up to a record-setting 2.25%, up from the 2.10% rate that was set less than two weeks prior.
“As part of our commitment to deliver competitive rates, we actively monitor market conditions and other factors,” Ally told customers in an email Tuesday. “Based on recent trends, we're increasing your rate and now you'll get even more out of your savings.”
*Rates and APYs are subject to change. All information provided here is accurate as of May 19, 2023.
According to the email, this historically high rate is available for savings accounts of “all balance tiers.”
Amid the doom and gloom of inflation and concerns about a looming recession, a steady stream of APY-increase emails from Ally in recent months have provided account holders with much needed dose of positive news for their wallets.
By Money’s count, Ally Bank has announced at least 13 APY increases since May.
Online accounts at other banks are seeing steady upticks to their APY. A notable example is Marcus by Goldman Sachs, where the high-yield online savings rate reached 2.15% at the end of September — a marked increase from the 0.5% APY seen this spring.
Why savings rates are increasing
In a roundabout way, you have inflation to thank for a higher yield on your savings account.
The Federal Reserve, the U.S.’s central banking system, is acting aggressively to control skyrocketing prices. The primary way it does this by raising a different interest rate called the federal funds rate, which is the rate at which banks lend each other money overnight. While the end goal is to manage inflation, a higher federal funds rate has all kinds of rippling effects, including higher APRs for credit cards and loans as well as fewer available jobs.
Many economists worry that the Fed’s aggressive rate hikes could plunge the overall economy into a recession. A more welcome side effect? Higher yields on savings accounts.
“The federal funds rate controls how much it costs to borrow money in this country, and when it is higher, banks can make more money by loaning out their customers’ deposits at higher rates,” Laura Cuber, a certified financial planner, told Money in a recent issue of Dollar Scholar. “In turn, they offer higher interest rates to their customers to encourage them to keep their deposits at the bank.”
The trend is most apparent with online savings accounts through banks like Ally and Marcus, which typically have rates much higher than what traditional brick-and-mortar institutions offer because of their lower operating costs and need to attract customers. However, savings rates across the board are on the up and up.
According to the latest numbers from the FDIC, the national savings rate is 0.17%. Paltry compared to Ally’s current rate, yes, but it is a marked increase from just a few months ago. In July, for example, that rate was 0.10%.
Going forward, the Fed is likely to keep hiking rates to quell inflation, as it has already done so five times in 2022. That’s likely to add fuel to the fiery debate about a recession.
Chances are, though, if that happens, you can also count on another email from Ally saying your APY is going up again.