Although the Federal Reserve’s interest rate hike last week – and a nod to more rate hikes to come – sent groans through the pool of aspiring home and car buyers in hopes of keeping borrowing costs low, this may be good news for some consumers: those hoping to earn a little more from their savings accounts. “Over the past few months, we have already started to see increases in the interest rates that banks are offering on deposit accounts, but we are likely to see even more now that the Fed has announced a rate hike. “, says Chanelle Bessette, banking specialist at Nerdwallet.
Ken Tumin, Founder of DepositAcounts.com adds, “Several online banks have recently raised their savings account rates in the past two months, even before the first Fed rate hike,” adds Ken Tumin, Founder from DepositAcounts.com – with potentially more increases to come, say the pros.
So how does it all work exactly? “When the Fed raises interest rates, it becomes more expensive to borrow, which means consumers generally pay higher interest rates on mortgages and loans,” Bessette says. “And because the banks lend their money at a higher rate, [that] means banks can pay more interest to their customers on their checking, savings and certificate of deposit accounts,” says Bessette.
In other words: “The rising tide means that banks are often paying higher rates on savings and other deposit products to keep the deposits they have and bring in new deposits. But this relationship isn’t perfect, because banks with large deposits don’t have to price competitively to retain or attract new deposits,” says Greg McBride, chief financial analyst at Bankrate. (This site offers a summary of bank deposits, but note that it is only updated once a year.)
Granted, banks aren’t required to raise your interest rate on your savings account, and not all will: “Banks are free to delay or avoid rate hikes on savings accounts. savings based on factors such as deposit needs,” says Tumine. Indeed, Tumin adds that many banks, especially the big ones, have overflowed with deposits while demand for loans has been weak for the past two years. And that may mean they’re in no rush to raise rates on their savings accounts, regardless of the Fed’s rate hikes. But others face different problems: “Some have seen demand for loans increase while deposit levels have been insufficient,” he says.
Where Experts Predict You’re Likely to Find the Highest Interest Rates on Savings Accounts
“Online banks have a history of raising their savings account rates aggressively as the Fed raises rates,” Tumin says. To find banks that are already paying high rates, McBride says, “There are many online banks offering competitive returns to customers across the country, often with very little or no minimum deposit. Everyone needs emergency savings and these accounts are literally within everyone’s reach.
At the end of the line : “Where you keep your savings will be very important over the next couple of years as banks increase savings payouts at varying speeds and some won’t at all. Online banks and smaller community banks that are already paying competitive yields are most likely to raise rates further to stay competitive,” predicts McBride.