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Why Interest on Your Savings Account May Be Far Behind the Fed

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As the Federal Reserve continues to raise interest rates, you can assume you’re earning more on the money in your savings account.

But that may not be the case.

Carolyn McClanahan, certified financial planner at Life Planning Partners in Jacksonville, Florida, was recently surprised when a client told her that he was earning virtually no interest on his money.

The interest rate on his Capital One account was 0.3%, well below the 3.3% annual percentage yield the company currently advertises for new savings accounts. McClanahan discovered the same situation when she checked her own Capital One account.

“I wasn’t happy,” McClanahan said.

While a call to Capital One customer service revealed it was possible to access the higher interest rate by opening a new account, McClanahan decided it was best to move the money elsewhere.

“I have recommended Capital One for a long time, and they are no longer on my list,” McClanahan said.

Capital One did not immediately respond to requests for comment.

The Federal Reserve has raised the federal funds rate to the highest level since 2007. While this will make borrowing more expensive for credit cards and other accounts, it is expected to also increase the interest consumers can realize on their cash savings.

Some online savings accounts boast rates as high as 4%. Some certificates of deposit, or CDs, may offer higher rates, depending on the term.

Rates are expected to climb even higher as the Federal Reserve prepares to continue its hike cycle in 2023. Bankrate.com predicts that the domestic money market and the best performing savings accounts could climb to 5.25% d end of the year.

Still, like McClanahan, others might be surprised if they realize their accounts aren’t tracking those high rates.

“Consumers should check their accounts at least once a month to see what their accounts are doing,” said Ken Tumin, senior industry analyst at LendingTree and founder of Deposit Accounts.

“Don’t assume this is the latest highest rate,” he said.

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After the Fed’s rate hikes, online savings accounts should generally be in the federal funds rate range within about a month, according to Tumin.

There are signs that can help consumers spot when they may be wronged on rates.

Watch for account name changes, Tumin said. If a bank has been offering savings offers under a new account name since you opened your account, the terms you are subject to may not be the most up-to-date.

If you see a new account, you can often request to be upgraded.

“It’s an easy way to benefit from the higher rate,” Tumin said..

Also be more vigilant when a bank, like Emigrant Bank, has more than one online division, Tumin said. In September, Emigrant’s Dollar Savings Direct division was the first to offer 3% on an account, which eventually rose to 3.5%.

Today, however, its My Savings Direct division has the highest rate for an online account, at 4.35%, Tumin noted.

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