Almost immediately after the Federal Reserve raised the discount rate from near zero to .25%, banks began to raise the cost of borrowing for mortgages, credit cards, and other loans. In particular, Wells Fargo, PNC, and JP Morgan banks raised their prime borrowing rates to 3.5% less than five minutes after Chairman Yellen’s announcement.
But while the cost of borrowing from banks is increasing, the opposite end appears not to be, and that is interest paid to depositors from which banks use in their lending to make profits at that prime plus rate.
Wells Fargo was the first of a slew of banks in announcing Wednesday that it would increase its prime rate to 3.5 percent effective Thursday.
It was the first major bank to announce a change to the base rate for consumer loans, which has been at 3.25 percent since 2008, according to the Federal Reserve’s weekly surveys of the 25 largest banks. Wells Fargo was joined in raising the prime rate by other major banks such as Deutsche Bank, Citibank, U.S. Bancorp, JPMorgan Chase, HSBC, KeyCorp, M&T, BMO Harris Bank, SunTrust, Huntington Bancshares and PNC.
Bank of America and BB&T also raised prime rates to 3.5 percent, effective Wednesday. – CNBC
Holding money in a bank is one of the riskier and imprudent options one can use in today’s financial system as the return on ‘investment’ is less than the rate of inflation. And in addition, new laws passed following the 2008 Credit Crisis means your money is no longer under your control, and can be confiscated by the banks should they experience a loss of capital, a crisis in liquidity, or some other financial emergency.
For years the reward for allowing banks to make profits off of your money was the policy that they would pay you a modicum of interest for use of that capital. But in this era of bank bailouts and where deposits are now considered to be liabilities to the banks, it is no longer surprising that banking is a one sided transaction that benefits the creditor and provides almost nothing to the depositor.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.