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

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

Interest rates are rising, with the Federal Reserve on Wednesday increasing your referral rate for the fifth time this year to a 3.25% target. But Americans hoping to benefit from a similar rate hike on their savings accounts have been out of luck this year.

To be sure, savings account rates have risen, but they lag behind the pace set by the Federal Reserve, as well as increases seen in other interest-based products like mortgages and credit card rates, which increased this year.

Average physical savings accounts paid a meager 0.13%, according to Bankrate’s Sept. 21 weekly survey of institutions. By comparison, mortgage lenders now charge above 6%a level not seen since 2008, while credit cards are charging 21.59% APR for new cards, two percentage points higher than at the beginning of the year, according to LendingTree.

That’s creating a painful reality for savers: While rates are higher than they were nine months ago, banks are offering yields that remain well below highest inflation in four decades. It’s certainly better than the returns 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 benchmark Fed means savers are being left behind.

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

Banks: Flush with cash

Savings accounts offered lower interest rates before Wednesday’s hike compared to three years ago, when the federal funds rate was at the same level, Tumin said. Savings rates are likely to rise in coming days, but are likely to still 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 haven’t had to raise rates to attract customers, given the surge in deposits during the pandemic. In essence, banks are flush with cash, which they use to finance their loans. Savings jumped during the pandemic as Americans cut spending on travel and entertainment amid government shutdowns, while cash injections through stimulus checks and pandemic aid helped bolster their cash reserves.

“A lot of people put the extra savings in banks,” Tumin said. “Over the last decade, there have been so many years of low rates that many consumers have been conditioned to low rates and may not shop around for higher rates like they used to, especially at traditional banks where you won’t get much profit from shopping.” .

A bright spot: online accounts

There is an option for consumers who keep their money in traditional banks and want to take advantage of their performance: turn to online banking, Tumin said.

“By not maintaining the branch network, that’s a huge cost reduction [online banks] can invest in higher deposit rates instead of operating branches and staff,” he said.

The average online savings account offered 1.81% in September, according to While it is much better than the 0.13% offered by traditional banks, it is still below the comparative rate of 2.21% offered by online banks as of February 2019.

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

How to find a better rate

There are many financial sites that compile current rates offered by a variety of banks, from to to Nerdwallet.

Tumin recommends keeping your checking account at the bank you’re currently using, but shop around for a better savings account rate at an online bank.

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

But read the fine print and make sure you know what services the online bank does or doesn’t offer, Tumin said. Sometimes smaller online banks don’t have the same services or the ability to handle complex transitions that larger physical institutions do, she noted. For example, some may not be able to handle joint accounts or trust accounts.

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

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