What Rising Interest Rates Mean For Your Savings Accounts

Interest Rates On The Rise

With interest rates on the move, due to the Fed’s latest rate hike, there are winners and losers galore. One of the areas we haven’t paid much attention to for years is our savings accounts. For most of us, we have been beaten into submission, simply accepting the laughable interest we’ve been getting. If you’ve been with a traditional bank the savings interest rate has been, well, insulting. Some banks have been paying as low as 0.1% on some of their savings accounts.

How Your Savings Account May Change

What has changed is with the Fed’s announcement of a .25% rate increase, banks will have to adjust to keep up. Of course, lending rates will increase as well, but the big winner here is your cash savings rates. When the Fed increases their rates, banks in lockstep will increase what they are paying to park money at their bank, generally speaking.

Essentially, it is exactly the outcome the Fed is hoping for to quell inflation. More incentive to leave your money in banks and less to take it out and spend in the open market.

Now, if you have your typical 3-6 months (or more) sitting in cash, these dollars can be a real amount. Ideally, you want to optimize the return on this investment. Sure, you can leave it earning .01%, but why? Wouldn’t you rather capitalize on earning more? Especially, if inflation continues at its current 7% rate every dollar that sits earning nothing is ACTUALLY losing 7% in spending power. It’s not likely you’ll ever have a savings account that will keep up with inflation per se. However, if we can be smart with these dollars, we can at very least eat into what inflation is doing to our spending power.

What Can You Do?

For starters, don’t simply accept the interest rate being provided to you by your normal brick and mortar bank. They are great at a lot of things, generally though savings accounts aren’t one of them. Instead, start looking at online-only banks or savings accounts. Without physical locations, these banks save on overhead, which is generally one of the reasons their interest rates seem too good to be true.

Can You Trust These Banks?

An online bank may sound scary to some, so can they be trusted? The answer is – absolutely, yes. They are FDIC insured the same way your deposits at a more traditional bank would be (up to $250,000 per account registration). In addition, most people already use online banking even at their brick-and-mortar banks, so any concern of security would be the same regardless of the type of bank you are leaving your money at.

How Do They Work?

Generally, how these online banks work is you create an account online. From there you will connect it to your outside checking account. They will then make a small deposit of a penny or two to confirm the connection. From there it is as easy as apple pie. You can just initiate a transfer of funds to and from your accounts as you wish. There are a few things you should be aware of when using an online-only bank for savings:

1. Transfer time may take an extra day or two vs. an internal transfer you are used to.

2. There is usually a limit to the amount of transfers a month. Not usually a problem but something to note.

3. Some of the banks will give you a teaser rate, so beware. They may offer a lower rate for a set period of time and then change the rate.

Just make sure you read the fine print when choosing an online-only savings account.

Dollar Saved Is A Dollar Earned.

As Ben Franklin said, “a penny saved is a penny earned”. In some cases, the additional earnings aren’t groundbreaking and in others, they can be sizeable. The point is, things are on the move, and accepting the status quo shouldn’t be acceptable.

Please note, the information provided on this website is for informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. The content on this website is not intended to provide tax, legal, or accounting advice, and you are advised to seek out qualified professionals that provide advice on these issues for your individual circumstances.

Financial planning and Investment advisory services offered through Diversified, LLC. Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC Headquartered at 80 State Street, Albany, NY 12207. Purshe Kaplan Sterling Investments and Diversified, LLC are not affiliated companies.

Diversified, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. Diversified only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. Diversified does not provide tax or legal advice and individuals should seek the advice of their own tax or legal advisors for specific information regarding their situations. Investments in securities involve risk, including the possible loss of principal. The information on this website is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.