How long before interest rate hikes actually hit your savings account?

The rising tide of interest rates could miss some ships.

Key points

• Credit products react much faster to rate increases than savings products.
• Banks with already competitive rates will likely be the first to raise rates.
• Accounts with low rates may not see increases at all.

Earlier this year, the Federal Reserve made the first interest rate hike of the year. Not only that, but it was the biggest increase in more than two decades. And there would be at least two other increases in progress.

These increases affect the federal funds rate, which tends to influence interest rates on things like loans and credit cards. In fact, many credit products will respond almost immediately to a rate increase with their own APR increases. (Your credit card APR, for example, has probably already increased.)

Unfortunately, savings account APYs are generally not based on federal funds or prime rates. Instead, they are set internally by the bank based on factors such as competition or marketing. This means increases can be much slower – if they happen at all.

Some rates are already rising, others never will

When – and even if – you see an increase in interest rates on your savings accounts will likely depend primarily on the type of bank you have, as well as the type of account.

The best savings accounts with already competitive rates are more likely to increase those rates. It probably won’t be an individual increase (i.e. a 0.5% increase from the Fed will not necessarily mean a 0.5% increase from the Fed). your bank), but these types of accounts may have an upward trend.

It’s hard to say how fast this is happening, but most experts don’t expect overall savings account rates to rise until later this year or even next year. That said, some of the more nimble and competitive fintechs and online banks might respond faster.

Low-performing accounts with barely above average APYs, well, they’ll likely stay barely above average. If they do eventually raise their rates, it will likely be at an almost ice-cold rate and it will take a few years for it to really show up in your bottom line.

It often comes down to how much they want your money

The interest you earn on a savings account is there to encourage you to keep more money in the bank. This is because banks use these deposits to fund things like loans and investments. They then pay you a tiny fraction of what they earned as a thank you.

Whether or not a bank actually needs people to increase its deposits often determines the pace of its savings account interest rates.

In other words, small businesses that want more customers (read: online banks and credit unions) often have higher interest rates. On the other hand, giant financial behemoths with lots of money and diversified revenue streams – for example, most brick-and-mortar banks – usually have the lowest rates.

You may need to switch banks for higher returns

This is to say that Fed rate hikes are unlikely to help the average person save more money. Even if rates rise, they won’t do it fast enough, or with enough vigor, to really make a dent.

If you’re stuck in a low-yielding savings account, your best bet for a higher rate is probably to simply switch banks. This can be especially effective if you’re comfortable with online-only banking, as they tend to be the most competitive.

Additionally, many banks offer sign-up bonuses for new accounts. It can earn you an extra $100 to $300 for opening an account. A good bonus can do a lot more for your budget than a half percent increase in your APY.