In Indianapolis, you can find interest rates on savings accounts so low that even Mr. Potter from “It’s a Wonderful Life” might shed a tear for bank customers.
The average savings account in Indianapolis now pays a mere 0.072 percent, according to a survey by GoBankingRates.com.
You read it right: 0.072 percent.
It could be worse. Banks in Indiana’s second-largest city, Fort Wayne, pay an average 0.046 interest on basic savings.
As a whole, Indiana averaged 0.056 percent—making it fifth-lowest among 50 states and the District of Columbia, according to the survey. Arkansas had the highest average savings return, at 0.204 percent, while North Dakota had the lowest, at 0.035 percent.
In a banking world where you once could earn 5 percent on a savings account, even the country's most generous current rates might seem sub-atomic. Los Angeles-based GoBanking didn’t use an electron microscope, but rather surveyed more than 4,000 financial institutions around the country.
The Indianapolis metro area came in at mid-pack, at No. 55 for highest rate among the nation’s top 100 cities. Fort Wayne was No. 95.
The city with the highest average rate was New Orleans, at 0.216 percent, while the lowest was Lincoln, Neb., at 0.034 percent.
The second-worst city for savings rates was nearby Cincinnati, ranking No. 99 at 0.037 percent. Cincinnati is home of the some of the biggest banks in the region, including Fifth Third Bank and First Financial Bank.
Rates in any city are determined by numerous factors in the local economy, said Amanda Garcia, an analyst at GoBankingRates.
The intensity of competition among banks in a given market can be one factor, said Michael Renninger, CEO of Renninger & Associates in Carmel.
Each bank’s management needs to balance the need to attract deposits with loan demand, anticipated deposit run-off, availability of other borrowing alternatives and other liquidity needs, he said.
“For instance, if loan demand is light, the need to attract additional deposits is diminished,” he said.
Other factors include rates being earned by the bank on investments and loans, Renninger said.
“We all know that actions by the Federal Reserve Board have kept [lending] interest rates artificially low. Low rates earned by banks on assets results in lower rates paid by banks for deposits," he said.
But Indiana's dismal ranking among other states makes one wonder why financial institutions pay such low interest rates here in the state.
It could be that banks in the state have comparatively lower loan demand, Renninger said.
GoBankingRates.com Managing Editor Casey Bond noted that the difference in average rates between the highest- and lowest-raking states was pretty miniscule—just 0.169 percent.
"The averages are indicative of the local savings climate and can help depositors determine whether banks are actively encouraging deposits in their area," Bond wrote in the study.
“After years of rock-bottom rates we’re all hoping to see savings account rates rise again,” Bond wrote. “And while we might not get our wish any time soon, some depositors will find that they can eke out slightly higher earnings on savings if they live in the right place.”