The Federal Reserve System boosted the federal funds rate to a range between 0.75 and 1 percent on March 15. But don’t hold your breath waiting for your bank to follow up with a bump in the interest rate it pays out on your savings account.
Although big banks were quick to roll out interest rate increases on loans and credit cards after the Federal Reserve rate hike was announced, they’re in no big rush to increase the rates they pay on consumer savings accounts, BuzzFeed reports.
Today, most savers are lucky to get more than 0.2 percent interest on a six-month certificate of deposit at their bank, while back in 2005, prior to the financial crisis and decade of low interest rates that followed, it would have been more like 2.4 percent.
Even with three interest rate increases from the Fed since December 2015, the interest rate on savings accounts has barely budged.
“People need to get used to the idea of [saving account] rates being low,” Alan MacEachin, a corporate economist at Navy Federal Credit Union, tells the Washington Post.
This begs the question: Why are banks so reluctant to pay out more on savings accounts?
According to Fortune, the answer is twofold. First, banks are looking to increase their profits after the record-low interest rates in recent years squeezed their margins. Second, because major banks are “sitting on a large pile of deposits,” they lack any incentive to increase the rates to encourage more savings.
Greg McBride, chief financial analyst at Bankrate, tells Fortune:
“If you want to find better yields on savings accounts and CDs in this environment where the Fed is raising rates—you have to go to find it. You can’t expect it to land in your lap.”
How to boost the return on your savings
Instead of letting your hard-earned cash sit in a low-yield savings account, consider making your money work harder with well-chosen dividend-paying stocks. Find out more in “Earn More on Your Savings With This Strategy.”
Another option is a high-yield checking account. As I have noted before, this type of account can earn you a lot more than the standard savings rate.
Though 1.65 percent interest may not sound like a very big payoff, it’s a sizable step up from the measly 0.11 percent yield offered on many average money market accounts these days.
However, it’s important to make sure this is the right type of account for you. For more information, read “Get a Checking Account That Earns 20 Times More Than Conventional Savings.”
Do you have any tips for snagging a savings account with a great rate? Share your thoughts below or on Facebook.