Big Banks Aren’t Keeping Up with the Fed’s Interest Rates. Where to Save Instead

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The Federal Reserve announced another big interest rate increase this week — again.

The latest rate hike marks the seventh this year, and a 15-year high for the Fed’s target federal funds rate range. This year alone, the Fed has increased from pandemic-era lows near zero to interest rates now targeting 4.25% – 4.50%, all in its effort to bring down record-high inflation rates.

In turn, rates have increased on consumer banking products across the country. Mortgages are more expensive, credit card debt is more costly, and, on the bright side, savings rates have skyrocketed.

“It depends on what side of the table you’re on, right?” says Jose Hernandez, NextUp honoree a financial educator, founder of Financial University, and author of the forthcoming book “Invest Like You Mean It.” “If you’re a saver, the rates going up can be good for you.”

But not every saver may be seeing the effects of rapid interest rate increases on their savings balances. If you’re looking to take advantage of today’s great rates for yourself, here’s where to look:

[READ MORE: Savings Rates Are Sky High Right Now. 5 Examples of What That Means for Your Money]

Why Some Banks Have Higher Interest Rates Than Others

If you’re a customer of a large brick-and-mortar bank, one of the well-known financial brands with branches across the country, you may not be reaping the same savings rate benefits that are helping to offset rising costs elsewhere. 

That’s because not all financial institutions are raising rates at the same pace as the Fed. Savings account rates aren’t only based on the Fed’s rate hikes; they also use their savings rates as a way to compete with other banks for your money.

Throughout the pandemic, Americans stuck at home saved record amounts of money. And some banks are still flush with cash reserves. Plus, these banks have multiple locations with high overhead costs that can often keep them from passing on higher rates to customers.

The alternative is an online bank. High-yield savings accounts are often offered by online-only banks or online divisions of larger financial institutions. These banks have fewer overhead costs and do want to compete for your money, so they move more quickly to keep pace with the Fed’s rate and offer you a higher rate.

A high interest rate is great, but it’s not the only factor to consider for your savings. Before opening any new account, make sure you consider other account details that could be important over time. Fees, minimum deposit or balance requirements, options for accessing your money, and availability of transfers are all things you can find on a bank’s website in the account terms. And remember to always make sure your account is insured by the Federal Deposit Insurance Corporation (which all banks should be) against bank failure.

And as the Fed keeps up rate hikes until inflation cools, you can expect those variable interest to keep moving up.

“The big banks aren’t going to be as generous with increasing savings account rates and CD rates, but banks in the online space have been moving pretty lock step with the Fed raising rates,” says Ana N’Jie-Konte, NextUp honoree, financial advisor and the founder of Dare to Dream Financial Planning. For each of the Fed’s recent rate hikes, she says, “a lot of that is passed on to the customer, which is great. And I think we’re going to continue to see that.”

Where You Can Get the Highest Savings Rates Right Now

Following the Fed’s most recent rate hike, some online banks are already beginning to move their rates closer to 4.00% APY and beyond.

Salem Five Direct, for example, has a high-yield savings account that earns 4.10% APY right now, with no monthly fees and just $10 required to open. UFB Direct, another online bank, has the highest savings rate we can find right now — a whopping 4.11% APY with no monthly fees or minimums.

Other competitive savings rates today are around 3.00% to 3.50% APY, but we’ve seen them move up consistently over the past several weeks. 

Here’s a closer look at the high-yield savings accounts we track each week, and how their rates have improved over time. 

Bottom Line 

The Fed keeps raising interest rates, and the best way to benefit from them is with your savings. But not every bank will offer a competitive rate, especially if you have a traditional savings account with a brick-and-mortar bank. If you want to boost your savings balance with higher interest, consider a high-yield savings account with an online bank, which can help you keep up with federal interest rate moves over time. 

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