Ally Bank cut interest rates again, just one month after its last cut. Now, Money’s best online bank (for the second year in a row, thanks to its excellent customer service, user-friendly mobile app and competitive pricing) has interest rates on savings accounts of 1.6%.
In an email to clients Thursday evening, Ally announced that “the annual percentage return (APY) on your online savings account is going from 1.70% APY to 1.60% APY for all levels of balance. Your new APY is effective 12/20/2019 and will appear online in your account details on 12/21/2019.
As we noted in October, there has been some competition among online banks over who could offer the most competitive interest rates. Competition has pushed Ally’s savings rate up to 2.2% in the recent past.
Online banks have less overhead and therefore can give back more to their customers, but ultimately they are bound by the sound laws of economics like all other banks. This year, the Federal Reserve has cut interest rates, in part to mitigate the effects of the ongoing trade war with China and to avoid warning signs of an economic depression to come. Interest rate cuts are meant to stimulate the economy by making it easier to get a loan, but this type of movement tends to have ripple effects, and Ally had to react accordingly.
The result of all of this is that your money is now going to make you less money. As we noted, “If you had $ 10,000 in an Ally account when the rate was 2.2%, you would earn $ 220 in interest over the course of a year. But when the rate is 1.8%, your return is only $ 180. And now your return will only be $ 160.
It’s not just Ally Bank that cuts bank account interest rates, of course. Unfortunately for savers, this is an industry-wide trend, based on actions taken by the Fed.
Will there be further interest rate cuts? Only Federal Reserve Chairman Jerome Powell knows for sure.