Question 1

Why does my savings rate follow the Fed?

Accepted Answer

Banks run on a simple business. They borrow money from you, at one rate, and lend it out at a higher rate. The difference is the margin. When the Fed raises the federal funds rate, banks can suddenly earn more on their own reserves and on short-term Treasuries just by holding money overnight. In a competitive market they pass a chunk of that increase on to you to keep you from moving your deposit down the street. In a less competitive market, they keep the increase as profit and tell you the rate is set by "market conditions." The gap between the Fed rate and the yield on your statement is the clearest measure of how much your bank thinks you are paying attention.

Question 2

What is a high-yield savings account?

Accepted Answer

A federally insured deposit account that pays substantially more interest than a traditional big-bank savings account. Usually offered by online-only banks, some smaller community banks, and some credit unions. Top HYSAs carry no monthly fees, no minimum balance past the first dollar, and provide FDIC or NCUA coverage up to the standard limits. Rates are variable, so they will move with the rate environment. During rising-rate cycles, top HYSAs have historically paid eight to ten times what the largest traditional banks pay. The ratio is not a typo. A 5% account and a 0.5% account are both called savings accounts. Only one of them actually is.

Question 3

What counts as a fair savings rate right now?

Accepted Answer

The cleanest benchmark is the 3-month Treasury bill yield. That is what you could earn with zero credit risk by holding T-bills directly, via TreasuryDirect or a T-bill money-market fund. A fair savings account matches it or comes close. The FDIC National Deposit Rate for savings, reported monthly, tells you what the average U.S. bank actually pays. Three tiers. Rate at or above the T-bill, you are being treated fairly. Rate between the FDIC average and the T-bill, you are lagging the benchmark but beating the crowd. Rate below the FDIC average, your bank is treating your deposit as a subsidy to their lending business. Switch. It is almost always worth it.

Question 4

How do banks decide what to pay on savings?

Accepted Answer

Four forces. The wholesale cost of funding, which is what it would cost them to borrow from other banks or the Fed. The need to grow or retain deposits to support their lending book. The competitive pressure from neighbors and online challengers. And the stickiness of their existing depositors, which is a polite way of saying how many customers won't leave no matter how badly they are treated. Big banks with millions of loyal accountholders rely on the fourth one. Online banks rely on the third. The gap between the two grows during rate-hiking cycles, when the big banks can pocket the difference, and shrinks when the Fed cuts and competition stops mattering as much.

Question 5

Where can I find the best savings rate?

Accepted Answer

Bankrate, NerdWallet, DepositAccounts, and DoctorOfCredit all publish daily-updated lists of top-quartile HYSAs. Before you move money: confirm the bank is FDIC-insured via banks.data.fdic.gov. Confirm the quoted rate is APY, not a three-month promotional tease that reverts to 0.5% afterward. Read the fine print on monthly withdrawal limits, transfer speeds, and whether the rate applies to all balances or only tiers above some threshold. Big banks will occasionally match online rates for a few months to keep a high-balance customer from leaving, so if your current bank is otherwise convenient, a phone call is free.

Year	Fed funds	3-mo T-bill	FDIC avg	Gap (T-bill − FDIC)
2022	1.69%	2.02%	0.13%	+1.90%
2023	5.03%	5.07%	0.41%	+4.66%
2024	5.14%	4.97%	0.45%	+4.52%
2025	4.21%	4.07%	0.40%	+3.67%

Your APY	0.50%
Balance	$25,000
Fed funds	3.64%
3-mo T-bill	3.62%
FDIC avg	0.39%
Gap vs T-bill	+312 basis points
Verdict	Lagging

Is your bank paying you fairly?

What you’re getting

Fed funds vs T-bill vs FDIC average, year by year.

Am I getting a fair savings rate?

Savings rates, answered.

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