The president can influence your savings account APY, but they have less power than you think.
A new president can affect just about every aspect of the way the country runs. Politics impact everything from broad economic and social policies all the way down to the nitty gritty of things like your personal financial accounts. But the president doesn't have the power to change your savings account interest rate. That rests with financial institutions and Federal Reserve.
Here's a closer look at how the president-elect can influence the Federal Reserve and what it could mean for your savings.
The Federal Reserve is the country's central bank. One of its main jobs is to maintain economic stability. To accomplish this, the Federal Reserve raises and lowers the cost of borrowing money as it sees fit. The bank isn't technically owned by anyone, nor is it under the direct purview of the president, though the president can indirectly influence Federal Reserve policies in a few ways.
The president is allowed to appoint the Federal Reserve Chair and to nominate all seven members of the Board of Governors. These are the people who are responsible for making decisions that will ultimately affect your savings account rates. However, each member serves a term of 14 years. A new one is appointed every two years, as well. As a result, the current president's influence is limited. In addition, the Senate has to confirm each nominee -- further limiting the president's power. Finally, there are 12 Federal regional banks throughout the country. The president has no say in who runs those.
Technically, the president could also remove the Federal Chair, but there would need to be a good reason for doing so. Disagreeing on policy doesn't count. This has never happened in U.S. history.
Nominating isn't the only way the president can influence the Federal Reserve. The president's policies are likely to have an impact on the economy. In turn, the Federal Reserve may raise or drop rates based on the current and forecast state of the economy.
The president is free to disagree with Federal Reserve decisions. But the government cannot force the Federal Reserve into or out of a particular course of action. The Board of Governors is ultimately responsible for making important long-term policy decisions that affect banks, and in turn, your savings account.
One of the ways the Federal Reserve maintains economic stability is by raising or lowering the federal funds rate. This is the interest rate banks use to lend money to each other and it influences the rates banks offer to their customers.
When the Federal Reserve slashes the federal funds rate, as often happens in economic crises, it becomes more affordable for banks to lend money to each other and to customers. This usually causes interest rates on personal loans to drop. But unfortunately for savers, the APYs on savings accounts usually follow suit.
That's because banks loan out some of the funds from savings accounts. They give savers some of that interest as a bonus to incentivize them to keep their money at the bank. But when banks earn less on loans, they give less back to savers.
Conversely, when the federal funds rate rises, loans get more expensive and you typically see savings account APYs begin to climb as well.
Your bank determines your savings account interest rate. It takes the federal funds rate into account, as discussed above, but other factors influence rates as well. Online banks, for example, usually offer much higher APYs than you typically see with brick-and-mortar banks. They don't have branches to maintain or as many employees to pay, so they can pass their savings along to you in the form of higher rates.
Some banks reward customers who keep more money at the bank with higher interest rates. Others prefer to offer the same rate to all customers regardless of balance.
Savings account APYs aren't locked in. They can change at any time. You may not notice an immediate change in your savings account interest rate after the Federal Reserve raises or lowers the federal funds rate. But in the days and weeks that follow, you may notice rates slowly begin to rise or fall.
When looking for the best place to keep your savings, here are a few things to watch out for. Once you're ready to open an account, check out our picks of the best savings accounts to find the right one for you.
The president can indirectly influence how much interest you earn on your savings account by economic policy and Federal Reserve appointments. But you also have a lot of say in how much interest you earn by being a discerning consumer. You can compare savings accounts to find the right one for you, no matter who wins an election. And, of course, you can indirectly influence Federal Reserve policy too by voting in the next presidential election.
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