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How to make more money from your savings now that the banks are raising interest rates

The Federal Reserve has raised interest rates five times this year, most recently on Wednesday, as part of ongoing efforts to slow the pace of inflation.

The idea is that since the US Federal Reserve makes it more expensive to borrow money, the demand for goods and services will decrease, thereby causing prices to fall.

A side effect of the increased interest rates is that the banks can increase the amount of money they pay to consumers who put some of their money in savings accounts. As banks earn more on the money they lend, the same institutions can offer higher returns to their customers.

Think of it as the virtuous cycle of the lending and saving relationship banks have with their customers. But until recently, the interest rate on savings accounts has not been that impressive.

“All interest rates have fallen quite far from previous decades,”[ads1]; financial analyst Greg McBride said in an email.

Until this year, McBride said, interest rates had fallen for more than 40 years β€” and so had the amount of money banks paid into those accounts.

“When we look back to the early 1980s, the Fed funds rate, Treasury rates and mortgage rates were in double digits,” he said. β€œIn 1990, the Fed Funds rate was over 8%, Treasury rates were 7% to 9%, mortgage rates were 10%.

“In 2020, the Fed Funds rate was close to zero, Treasury rates were below 2%, and mortgage rates were 2.5% to 3%.”

Now that these prices are rising again, money costs more money.

But it means that there is an opportunity to get a higher return on deposits. McBride advises customers to shop around to get the best possible return on their savings.

Not all banks have significantly increased the interest rate on savings accounts. According to the Federal Deposit Insurance Corp. the average national savings account rate is 0.17%.

The low interest rates on savings account deposits recently caught the attention of lawmakers on Capitol Hill, who pressed major bank chiefs last week on why interest rates weren’t higher.

“As rates continue to rise, we would expect to continue to increase the rates we pay customers,” Wells Fargo CEO Charlie Scharf said in congressional testimony Thursday.

Some financial institutions, especially those that are Internet-only with no physical locations, have traditionally advertised higher interest rates with their high-yield savings account products. Some of these banks offer more than 1% or 2% β€” and in some rare cases more than 3% on savings accounts, according to NerdWallet representative Chanelle Bessette.

Bessette said online banks have fewer fixed costs than brick-and-mortar branches and also have to do more to compete for deposits.

Both Bankrate and NerdWallet offer lists of institutions that currently offer the highest yields. Among them are Discover, Capital One, American Express Savings and Marcus by Goldman Sachs.

McBride, financial analyst for, said it’s easy to sign up for one of these accounts, even if you do your primary banking elsewhere.

“You can open an online savings account with just a few minutes of your time, and link it to your checking account at your current financial institution to move money back and forth seamlessly,” he said. “If your bank has rolled out a new savings account with a higher return than the one you have now, just get in touch and ask to transfer your money to the new account with a higher return.”

In some cases, banks don’t make it clear to existing customers that they can now earn a higher savings account return, McBride said.

“We are seeing some nonsense where the banks are rolling out a new savings account that offers an attractive rate of return while the existing account holders remain in the original account at the original rate,” McBride said in an email.

“It’s easy enough to switch to the new account, but you have to take the action to make it happen, the bank won’t come knocking on your door with that option.”

Brian Cheung contributed.

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