Despite the Fed’s big rate hike, most banks won’t pay much in interest

Read Time:4 Minute, 5 Second

Jerome Powell, Federal Reserver Governor.

Katie Kramer | CNBC

The Federal Reserve just raised its benchmark interest rate by half a percentage point, its largest such move in more than two decades, as it seeks to tame inflation.

The central bank’s actions mean that, in an era of sharply rising prices for everything from food to fuel, the cost of money itself is rising. Borrowers — people seeking mortgages or carrying credit card debt — will soon be paying higher rates on those loans.

But on the other side of the equation, depositors who keep their savings at banks aren’t likely to reap the benefits anytime soon. That’s because the steps taken to avert economic disaster in 2020 left the US banking industry awash in deposits, and most lenders have little reason to attract more, according to analysts.

“The biggest banks in particular are sitting on a mountain of deposits. The last thing in the world they’re going to do is raise what they’re paying on those deposits,” said Greg McBride, chief financial analyst at “The big dominant banking franchises that have branches and ATMs from coast to coast, they’re not going to be pressured to increase their rates.”

Back in 2020, the US unleashed hundreds of billions of dollars in stimulus to small businesses and families, propped up markets with bond-buying programs and took rates to near zero. Much of that cash found its way to banks, which soaked up roughly $5 trillion in new deposits in the past two years, according to Federal Deposit Insurance Corporation data.

At the same time, the industry’s lending didn’t keep pace, meaning banks had fewer places to deploy the cash. Despite paying out paltry interest, the industry’s lending margins were squeezed, hitting a record low last year. The average nationwide figure paid for Savings has hovered at around 0.06%, according to At JPMorgan Chase, the biggest US bank by assets, most retail accounts paid a miniscule 0.01% annual percentage yield as of April 29.

Lagging hikes

In previous rate-hiking cycles, banks were typically slow to raise rates paid to depositors, at least at first, to allow them time to first lend out money at higher rates. That dynamic is not news to anyone who tracks the industry: In fact , it’s the biggest factor in the investment case for banks, which tend to benefit from fatter lending margins as the Federal Funds rate rises.

But there is debate among analysts about whether unique aspects of the present moment will force banks to be more responsive to rising rates. The outcome will have implications for millions of American savers.

The industry’s deposit beta, a term that measures how responsive a bank is to changes in the prevailing rate, is likely to be low “for the first few Fed rate hikes” because of “excess liquidity” in the financial system, JPMorgan banking analyst Vivek Juneja said in a May 4 note. (The higher a bank’s deposit beta, the more sharply it’s raising rates.)

But the steep rate of hikes expected this cycle, greater competition from fintech firms and broader rate awareness will result in higher deposit betas than the previous tightening cycle, Morgan Stanley analyst Betsy Graseck said in a March 14 note. That cycle lasted about three years through 2018.

“Consumers likely will be more aware of rate hikes given faster speed and fintech’s focus on rates as a way to acquire customers,” Graseck wrote. “This could pressure incumbent banks to raise their deposit rates more quickly.”

Furthermore, the Consumer Financial Protection Bureau has said that it will be watching how the industry reacts to rising rates during this cycle, raising the pressure on banks.

`Move your money’

Another unknown is the impact that the Fed’s so-called Quantitative Tightening will have on banks. That’s the reverse of the central bank’s bond buying programs; on Wednesday the Fed affirmed its guidance that it will reduce bond holdings by as much as $95 billion a month .

That could slow deposit growth more than banks expect, increasing the odds that they’ll be forced to raise rates this year, Graseck said.

While big lenders like JPMorgan, Bank of America and Wells Fargo aren’t likely to significantly hike their payouts anytime soon, online banks and fintech firms, community lenders and credit unions will be more responsive, raising rates this week, according to McBride. Representatives for the three banks didn’t immediately comment.

Just as the banks view the rates they pay savers purely as a business decision, savers should do the same, he said.

“Put your money where you’re going to get a better return, it’s the only free lunch in finance,” McBride said. “Moving your money to another federally insured financial institution gives you additional yield without having to take on any additional risk. “

Do you like money and finances? I invite you to go to finance news

0 %
0 %
0 %
0 %
0 %
0 %
We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners. View more
Cookies settings
Privacy & Cookie policy
Privacy & Cookies policy
Cookie name Active

Who we are

Suggested text: Our website address is:


Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection. An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: After approval of your comment, your profile picture is visible to the public in the context of your comment.


Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.


Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year. If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser. When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select "Remember Me", your login will persist for two weeks. If you log out of your account, the login cookies will be removed. If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website. These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue. For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where we send your data

Suggested text: Visitor comments may be checked through an automated spam detection service.
Save settings
Cookies settings