Why doesn’t anyone earn anything in a bank account anymore?


Since the 1980s the Fed has been encouraging debt-based spending to attempt to counter slowing economic growth — they influence interest rates lower (you get paid less interest in your bank account), and by doing so they make debt more “affordable” (individuals pay less in interest when they take on debt) so it’s potentially more attractive; individuals may then borrow more and spend more to boost economic growth, yet those holding cash-type assets (cash, savings, checking, and money market accounts) are punished (they’re paid out less) due to lower interest rates.

Fed-influenced interest rates are now near zero: A History of U.S. Short-Term Interest Rates

THE CATCH: Although more debt and more economic growth may occur temporarily due to the reduction of interest rates, the productiveness-of-the-debt determines the long-run outcome.  If the debt is productive — i.e. creates an income stream to repay the principal (original amount borrowed) and the interest on the debt — then long-run growth may not flag due to the debt; yet if the debt is unproductive and/or counter-productive then economic growth is constrained in the long run.

Is it worth having cash-type accounts if they don’t pay any interest?

It’s important to compare the risk and return of cash-type accounts to the potential risk and return for other asset classes.  In an environment of low long-term expected returns for other traditional asset classes, it may be worth it.  (See Expected Long-Term Returns for Traditional Asset Classes and Six Charts Worth Remembering for comparisons.)