Interest rates are rising.  So why is your savings account still paying 0.13%?
Interest rates are rising. So why is your savings account still paying 0.13%?

Interest rates are rising. So why is your savings account still paying 0.13%?

Interest rates are rising and the Federal Reserve will meet on Wednesday increasing its reference rate for the fifth time this year at a 3.25% target. But Americans hoping to take advantage of a similar increase in their savings account rates have been out of luck this year.

Of course, savings account rates have risen, but they’re lagging behind the pace set by the Federal Reserve — as well as increases in other interest-based products, such as mortgage and credit card rates, both of which have risen this year .

Average physical savings accounts paid just 0.13 percent, according to Bankrate’s weekly survey of institutions as of Sept. 21. By comparison, mortgage lenders charge now over 6%a level not seen since 2008, while credit cards charge 21.59% APR on new cards, up two percentage points from the start of the year, according to LendingTree.

This creates a painful reality for savers: while rates are higher than they were nine months ago, banks are offering yields that remain well below the highest inflation in the last four decades. That’s certainly better than the return experienced by stock and bond investors this year — with the S&P 500 down more than 20% year to date — but the gap between savings accounts and the Fed’s benchmark rate means savers are further behind .

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“The real return, unfortunately, is still negative — in this case, it’s negative because the inflation rate is still so high,” said Ken Tumin, banking expert at “Ultimately, I hope if the Fed can get inflation down to more normal levels, you’ll see some positive real returns, but right now, unfortunately, that’s not the case.”

Banks: Flush with cash

Savings accounts offered lower interest rates before Wednesday’s hike than three years ago, when the federal funds rate was flat, Tumin said. Savings rates are likely to rise in the coming days, but they are likely to lag behind the Fed’s 0.75 percentage point hike, he added.

For example, the average return on physical savings accounts in February 2019 was 0.2%, compared to the September 21 average of 0.13%.

The reason, Tumin said, boils down to the fact that traditional banks have not had to raise rates to attract customers, given an increase in deposits during the pandemic. Essentially, banks are flush with cash, which they use to fund their loans. saving jumped during the pandemic as Americans cut back spending on travel and entertainment amid government shutdowns, while cash infusions through stimulus checks and pandemic aid helped bolster their cash cushions.

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“A lot of people put their extra savings in banks,” noted Tumin. “Over the past decade, there have been so many years of low rates that many consumers have been conditioned to low rates and may not shop around as much as they used to for higher rates, especially at brick-and-mortar banks where you don’t really get the benefit of shopping around.”

One bright spot: online accounts

There is an option for consumers who keep their money at traditional brick-and-mortar banks and want to tap into their bottom line: turn to online banking, Tumin said.

“By not maintaining the branch network, this is a big cost reduction [online banks] can put in higher installments on deposit instead of operating branches and staff,” he said.

The average online savings account offered 1.81% in September, according to Although much better than the 0.13% rate offered by brick-and-mortar banks, it is still below the comparative rate of 2.21% offered by online banks in February 2019.

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“But 1.81% is 10 times higher than brick and mortar,” noted Tumin. “You have more incentive to move your money to online banks.”

How to shop for a better price

There are plenty of financial sites that compile current rates offered by a number of banks, from to and Nerdwallet.

Tumin recommends keeping your checking account with your current bank, but looking for a better savings account rate from an online bank.

Once you find a new service, you can link your old checking account to your new online savings account, he said. This will allow you to transfer money between accounts more easily, while also enjoying the higher rate on your online savings account.

But read the fine print and make sure you know what services are offered — or not offered — by the online bank, Tumin advised. Sometimes smaller online banks don’t have the same services or ability to handle complex transitions as larger institutions, he noted. For example, some may not be able to manage joint accounts or trust accounts.

“Most online banks are raising rates, maybe not as fast as the Fed, but they have pretty substantial rate increases,” Tumin said. “You’ll see higher rates than if you keep it at a brick-and-mortar bank.”

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