Waiting for High Bank Deposit Interest? Don't Hold Your Breath

One good thing that can happen for consumers is that with interest rates rising over the past year, your bank will pay you more interest on the money you deposit. Maybe not that much.

At least not for a while, according to research from the Federal Reserve Bank of New York this week. Its report showed banks have been slow to offer higher rates to retail customers and have been slow to do so.

Between March 2022 and March 2023, the effective federal funds rate—the rate at which banks lend money to each other—increased from near zero to 4.65% as the Fed escalated its campaign of anti-inflationary rate hikes.

The yield paid by banks to investors in money market funds tracked the fed funds rate, which moved almost as much. The Fed's analysis showed banks barely came up short on the average rates offered to retail customers on three-month certificates of deposit.

Deposits turned to dust due to hike in interest rates

The average interest rate offered for 3-month certified deposits has been rising at a slower pace since the Federal Reserve raised its benchmark fed funds rate. (To view a specific data point, tap or hover over that area of the chart.)

With a little research it is possible to find good deals on CDs and high-yield savings accounts. On average, however, CD rates have generally been in no rush to catch up with the fed funds rate, and have slowed over the past 20 years, previous research by the New York Fed showed, while money market funds offered to investors kept is speed.

New York Fed researchers said it is possible that banks view retail depositors as "less sophisticated" than professional investors.