Savers will have to pay extra attention to interest rates on bank accounts this year as the Federal Reserve moves to raise rates.
U.S. savers are missing out on more than $5 billion annually by failing to take advantage of high-yield savings accounts, according to a new review from Nerdwallet, a website that provides comparisons of credit products.
But bank customers could lose out worse in the months ahead if the Fed follows through with several rate increases, which would translate to higher rates on consumer financial products such as credit cards, mortgages and student loans.
Following a string of good news about the economy, including Friday’s strong jobs report, investors now expect the overnight interest rate targeted by the Fed to rise from about 0.66 in recent days to about 1.3 percent by the end of the year, according to bond market data collected by CME Group.
Rising overnight interest rates, in theory, should translate into better returns for savers with bank accounts.
But that would require them to shop around for higher savings rates, forcing banks to compete rather than simply reaping greater margins.
“Unfortunately, we don’t know how quickly banks adjust their interest rates to respond to Fed rate changes yet, partially because the Fed hasn’t changed rates significantly in years,” said Sean McQuay, NerdWallet’s credit and banking expert.
Banks won’t update rates on savings accounts rapidly or uniformly the way they do for credit cards, McQuay added.
Since the Fed lowered its interest rate target to zero in late 2008, some members of Congress have criticized it for penalizing savers. The Fed has defended its actions by saying that the moves were meant to boost the economy, providing better circumstances for everyone.
NerdWallet arrived at the $5.6 billion figure by calculating the difference between the average American’s savings invested in an account yielding 1.1 percent versus one yielding 0.01 percent, which comes to $28 a year. That sum was then multiplied by the total workforce.
