The US Congress is watching for banking institutions to justify why they have not raised the rates of return on their savings accounts; the banks respond and the consumer has to do things before receiving the benefit
After the Federal Reserve (Fed) raised interest rates since March of this year (it has already increased five times), many people continue to hope that this will be reflected in their savings accounts. Why hasn’t it happened for many of them? Because, unfortunately, banks have their own business strategies, and you will surely have to do some extra actions before you benefit from high interest rates.
When the US central bank raises benchmark rates, interest rates on financial products such as credit cards, loans and savings accounts rise as well. However, many consumers have seen mortgages and their plastics rise and rise, but not the yields on their savings accounts.
In theory, banks should automatically increase the annual rates of return they offer on savings accounts. Because banks earn more on the money they lend, those same institutions can offer higher returns to their customers. However, this has not been the case for everyone.
Not all banks have increased their interest rates for savings accounts. According to the Federal Deposit Insurance Corp., the national average interest rate on savings accounts is 0.17%.
In fact, these low interest rates on savings deposits recently caught the attention of lawmakers on Capitol Hill, who pressed CEOs of big banks last week to explain why they weren’t raising rates. And they do it like that.
“As rates continue to rise, we would expect to continue to raise the rates we pay customers,” Wells Fargo CEO Charlie Scharf said in testimony to Congress on Thursday.
According to a testimonial from Greg McBride, chief financial analyst at Bankrate.com, banks are not making it clear to current customers that they can now get a higher return on savings.
“We’re seeing some scams where banks launch a new savings account that offers an attractive return, while existing account holders stay in the original account at the original rate,” McBride told NBC. “It is quite easy to switch to the new account, but you have to take action to make it happen, the bank is not going to knock on your door with that opportunity”
In short, consumers with a current savings account do not see a change in their rates of return as expected. However, they have to approach their financial institution to switch their funds from their current account to a new high-yield account.
For a few years now, online banks tend to have the highest rates of return on their savings accounts compared to traditional banks, largely because they operate without physical branches. Some of these banks offer more than 1% or 2%, and in some rare cases more than 3% on savings accounts, according to Chanelle Bessett, representative of NerdWallet.
In short, if you want to take advantage of the Fed’s increased interest rates on your savings account, you’ll need to open a new savings account with the financial institution of your choice. Approach your bank and find out directly from them how to migrate your funds, if you already have an active account, or how to start a new high-yield savings account.