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December Fed Rate Hike: What It Means for Your Savings Accounts

Dec. 19, 2018
Banking, Banks & Credit Unions, Savings Accounts
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The Federal Reserve has hiked the federal funds rate for the ninth time in about three years. These rate increases are among several factors that can encourage banks and credit unions to nudge up the rates they pay on savings accounts.

That makes it an excellent time to revisit the way you bank to take advantage of rising interest rates.

» Looking to earn more on your savings? Check out NerdWallet’s top online savings accounts

Evaluate your bank

Higher savings rates will mean more money for people with deposits at online banks and some credit unions; most everyone else will come up empty-handed.

Big brick-and-mortar banks tend to respond more slowly to Fed rate increases, if they respond at all. The average rate on savings accounts at insured banks currently sits at a meager 0.09%, according to the Federal Deposit Insurance Corp.

With a savings rate, or annual percentage yield, of 0.09%, a $5,000 deposit earns less than $5 after one year. A 2% APY, which can be had at a number of trustworthy online banks, would earn about $100 — a decent return for little effort on your part.

Consider taking the digital banking plunge

Why do online banks have better rates than most traditional institutions?

“Online banks can offer higher rates because they’re aggressively trying to take business away from brick-and-mortar banks,” Kristina Yee said in a March interview.

“Their operations are just leaner,” said the then-senior analyst at financial services research firm Aite Group.

And although Fed rate hikes aren’t directly tied to savings account rates, they are one of several factors that could encourage banks and credit unions to increase APYs.

Diane Morais, president of consumer and commercial bank products at Ally Bank, an online-only institution, says Ally looks at several factors when mulling a rate change.

“Rates being offered by competitors are often a key factor,” she said. “We also look at things like the general level of interest rates in the economy, including the Fed funds rate, and the overall consumer demand for deposits.”

Being able to go to a branch to get in-person help is invaluable to some people. But it’s smart to consider your options.

Keep an eye out for high rates

Online banks and, to some extent, credit unions, have steadily increased their savings rates during the most recent string of Fed rate hikes.

Wednesday’s Fed rate increase will continue to drive up rates on savings products, says Robert Frick, corporate economist at Navy Federal Credit Union.

That makes it a good idea to compare your current bank’s rates to those of others; chances are good that you could be earning much more on your savings.

Look for benefits beyond high savings rates

Along with good savings account APYs, online banks and certain credit unions provide these benefits:

High-yield certificates of deposit: Online banks offer excellent CD rates; APYs on many five-year CDs have hit and exceeded 3%.

ATM access: Certain online banks and credit unions offer tens of thousands of free ATMs. Some even provide monthly ATM fee reimbursements.

Fewer fees: Online banks and credit unions tend not to charge monthly maintenance fees on savings accounts.

Customer service: Online banks typically have flexible phone hours and live online chat, and are active on Facebook and Twitter.

Online tools: Top-notch tools at online banks can help you better manage your savings, and mobile apps let you pay bills, deposit checks and transfer money to family and friends.

» Want specific account details? Check out these three online savings accounts:

Marcus by Goldman Sachs

at Marcus by Goldman Sachs,

Member, FDIC

4.0 NerdWallet rating

5.0 NerdWallet rating

American Express National Bank

at American Express National Bank,

Member, FDIC

4.0 NerdWallet rating


0.60% APY (annual percentage yield) as of 9/9/2020

Monthly fees


Bonus features

Excellent CD options



Monthly fees


Bonus features

Solid CD options


0.60% APY (annual percentage yield) as of 9/17/2020

Monthly fees


Bonus features

24/7 customer service

See more high-yield savings accounts

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