Online Bank Accounts With High Interest Rates Could Lose Some of Their Shine

Big banks bet that online savings accounts would help them bring in customers when rates were rising. Now that rates are falling, that growth may stall. Many banks started offering these accounts—which often paid interest rates of at least 2%—in the past couple of years to attract depositors. But some of those lenders, including

PNC Financial Services Group

PNC 0.40%

Citizens Financial Group

CFG -0.16%


CIT Group

CIT -1.14%

have recently started trimming their deposit rates. Banks have broad latitude over what they pay on deposits, though they tend to move interest up and down as the Federal Reserve adjusts rates. Banks often are quicker to cut deposit rates than they are to raise them. Banks including Goldman Sachs Group Inc. and

Ally Financial

ALLY -0.74%

recently cut their deposit rates even before the Fed did.

The Fed lowered short-term rates by 0.25 percentage points this summer—its first rate cut in a decade—and it could cut rates again this month. If it does, banks could be more inclined to keep lowering their deposit rates. The trend marks a reversal from a year ago, when the Fed was still raising rates and many bankers expected the rate increases to continue through this year.

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CIT, the parent company of California-based OneWest Bank, last year introduced a high-yield savings account, Savings Builder, that promised customers higher interest rates if they saved at least $100 a month or had at least $25,000 in their account. CIT has lowered the rate it pays on the higher tier of that account three times since May. The current rate is 2.2%, down from 2.45% before those three cuts. Deposits for the company’s direct bank, which includes those accounts, grew at a slower pace in the second quarter compared with the first quarter. Citizens launched its Citizens Access high-yield savings account last year. It lowered the rate on that account in July and then lowered it by an additional 0.2 percentage points this month to 2%. Citizens CEO

Bruce Van Saun

said in an interview in mid-July that the flow of new money into those accounts could slow if the Fed cuts rates more than twice. The central bank did that for the first time in this cycle shortly afterward.

Banks tweak interest rates to balance two different needs: They want to attract and retain customer deposits, but they don’t want to pay more than customers demand. Banks make money on the difference between what they charge on loans and what they pay on deposits. PNC lowered the rate on its online savings account by 0.2 percentage points in late August to 2.15%. “If you post in the top couple rates, you gather lots of deposits,” CEO

Bill Demchak

said on the company’s earnings call in July. “If you’re off that frontier, it slows down.” But those accounts still pay better rates than many lenders.

Andrew Frisbie,

executive vice president for consumer pricing at consulting firm Novantas, said the central bank would need to cut rates by something like 1.5 percentage points for customers to potentially lose interest in moving their money into these offerings. To receive our Markets newsletter every morning in your inbox, click here. Write to Allison Prang at

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