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The Federal Reserve raised interest rates in September, and savings rates are supposed to follow. Four weeks later, the answer is mixed. The best accounts now pay around 4.3 percent, but the average savings account barely moved. If your money sits at a big bank earning almost nothing, the hike hasn’t done much for you yet.
This guide to savings rates after the Fed hike covers what the central bank did, what top accounts pay, why the averages look so different from each other, and how to check what you’re earning.
What the Fed did in September
At its September 16 meeting, the Fed raised its benchmark rate by a quarter point, according to a Raisin breakdown of the decision. The target range went from 3.50 to 3.75 percent up to 3.75 to 4.00 percent, effective September 17, on a unanimous 12-0 vote. A 247WallSt report calls it the first hike in three years and says markets expect at least one more before the end of the year. Those are expectations, not decisions, and the Fed says it will decide meeting by meeting.
A Fed move doesn’t change your bank’s rate directly. Banks set their own. The share of a hike that banks pass on to depositors is sometimes called the deposit beta, and online banks tend to pass on more of it, faster, than big branch banks that count on loyal customers. Raisin expects variable savings rates to rise within a week or two at online banks, though that’s a forecast, not a measurement.
Savings rates today: top accounts versus the average
Here’s what the best accounts pay. A rate roundup from The College Investor dated October 14 lists Openbank at 4.35 percent, Peak Bank at 4.27 percent, and NexBank at 4.25 percent through Raisin. CIT Bank’s Platinum Savings also shows 4.25 percent with a promo code, but only for six months on balances of $5,000 or more, and the standard rate afterward is 3.75 percent.
Read the fine print. Openbank’s 4.35 percent includes a 0.35-point boost on a 4.00 percent base rate, and the boost applies to new customers for six months. Peak Bank requires $100 to open. One rate roundup even expects more rates to slip below 4 percent in the coming weeks, so treat any headline number as a snapshot.
Now the other end. The same roundup puts the national average savings rate at 0.37 percent, citing the FDIC. By our arithmetic, $10,000 earns about $37 a year at that rate and about $425 at 4.25 percent. That’s a gap of roughly $388 for moving money you already have.
Why average savings rates barely moved
Different sources measure different things, and the numbers can look contradictory. The 0.37 percent national average the roundup cites from the FDIC is one yardstick. MonitorBankRates reported on October 12 that its own average standard savings rate was 0.819 percent and its average high-yield rate was 1.950 percent, based on 18,353 rates at 3,723 banks and credit unions, with promotional teaser rates left out.
Notice the trend, too. That high-yield average was 1.978 percent on September 21 and 1.950 percent on October 12. It slipped slightly, rather than climbing. The site’s page doesn’t show averages from before the hike, so it can’t tell us the full effect. Still, it suggests the increase hasn’t reached the typical account. The higher rates are concentrated at the top of the market, not spread across all accounts.
CDs and Treasury bills: lock in or wait?
CDs work differently. A certificate of deposit locks its rate for the whole term, so one bought today misses any later increases. The 247WallSt report cites an FDIC national average of 1.73 percent for a 12-month CD as of September 1. It also lists Treasury bill yields on September 28 of 3.96 percent for four weeks and 4.54 percent for 52 weeks. Raisin says the hike sets a new floor for short and medium-term CD rates, though banks will adjust their new CDs to the market.
If another hike is coming, a long CD may leave you stuck with a lower rate. If the Fed stops, locking in could look smart. Nobody knows which. Many savers split the difference: keep an emergency fund in a flexible savings account, and put money you won’t need for a year or more into CDs or Treasuries. For background on why more hikes are possible, see our report on September inflation and the Fed’s rate-hike odds.
How to check your own savings rates
This takes about ten minutes. Look up your current annual percentage yield, or APY, in your bank’s app. Compare it with an online account, a federally insured credit union and a Treasury bill. NerdWallet’s Kate Ashford, speaking to CBS News Philadelphia, said savers have a real chance to earn more now, according to 247WallSt.
Check the details before you move anything. Look for monthly fees and minimum balances that could eat the interest, and confirm the account is FDIC or NCUA insured, which covers up to $250,000 per depositor, per institution. Interest is taxable, and banks issue a 1099-INT when it reaches $10. Keep the old account open until the transfer clears.
One more thing, and it’s the big one. If you carry a credit card balance, paying it down beats any savings account. The average card APR was 20.94 percent in May, according to the Federal Reserve data 247WallSt cites, far above anything a bank pays. Keep a modest cushion for emergencies, then go after the card.
What to watch next
Watch the Fed’s next meeting, and whether the average savings rates from the FDIC and MonitorBankRates start climbing. If they do, the hike is finally reaching ordinary savers. If they don’t, the gap between the best accounts and everyone else will keep growing. This article is general information, not financial advice, and rates change daily.
Editor’s take
The Fed hike didn’t raise savings rates so much as it widened the gap between people who shop around and people who don’t. The best accounts pay more than ten times the national average, and nothing stops you from moving. If you’re holding more than a month of expenses in an account that pays almost nothing, switching is the one move here that costs nothing and pays back quickly, so long as you check the fees and the fine print on any promotional rate first.
