Interest rates are shooting up. So why is your savings account still paying 0.13%?

Interest rates are rising, with the Federal Reserve on Wednesday boosting its benchmark rate for the fifth time this year to a target of 3.25%. But Americans hoping to profit from a similar rise in their savings accounts rates have been out of luck this year. 

To be sure, savings account rates have increased, but they are lagging the pace set by the Federal Reserve — as well as the hikes witnessed in other interest-based products, like mortgages and credit card rates, which have both surged this year. 

The average brick-and-mortar savings accounts paid a scant 0.13%, according to Bankrate's September 21 weekly survey of institutions. By comparison, mortgage lenders are now charging above 6%, a level not seen since 2008, while credit cards are charging an average of 21.59% APRs for new cards, two percentage points higher than at the start of the year, according to LendingTree.

That is creating a painful reality for savers: While rates are higher than they were nine months ago, banks are offering yields that remain far below the hottest inflation in four decades. It's certainly better than the returns experienced by stock and bond investors this year — with the S&P 500 down more than 20% year to date — but the gap between savings accounts and the Fed's benchmark rate means that savers are falling further behind.

"The real return, unfortunately, is still negative — in this case, it's negative because the inflation rate is still so high," said Ken Tumin, a banking expert at DepositAccounts.com. "Eventually, I hope if the Fed can lower inflation to more normal levels, you'll see some positive real returns but now, unfortunately, it's not."

Banks: Flush with cash

Savings accounts provided lower interest rates prior to Wednesday's hike compared with three years ago when the federal funds rate sat at the same level, Tumin said. Savings rates are likely to rise in the coming days, but will still likely lag the Fed's increase of 0.75 percentage points, he added.

For instance, the average yield for brick-and-mortar savings accounts in February 2019 was 0.2%, compared with the September 21 average of 0.13%. 

The reason, Tumin said, boils down to the fact that traditional banks haven't had to raise rates to lure customers, given a surge in deposits throughout the pandemic. In essence, the banks are flush with cash, which they use to fund their loans. Savings jumped during the pandemic as Americans cut back spending on travel and entertainment amid the government lockdowns, while infusions of cash via stimulus checks and pandemic aid helped bolster their cash cushions.

"A lot of people put the extra savings into banks," Tumin noted. "For the last decade, there have been so many years of low rates that a lot of consumers have been conditioned to low rates and may not shop around like they used to for higher rates, especially at brick-and-mortar banks where you don't get much benefit for shopping around."

A bright spot: Online accounts

There is an option for consumers who keep their money at traditional brick-and-mortar banks and who want to juice their return: Turn to online banking, Tumin said. 

"By not maintaining the branch network, that's a big cost reduction [online banks] can put into higher deposit rates instead of operating branches and staff," he said. 

The average online savings account offered 1.81% in September, according to DepositAccounts.com. While far better than the 0.13% offered by brick-and-mortar banks, it's still below the 2.21% comparative rate offered by online banks in February 2019. 

"But 1.81% is 10 times that of brick and mortar," Tumin noted. "You have more incentive to move your money to the online banks."

How to shop around for a better rate

There are plenty of financial sites that compile current rates offered by a range of banks, ranging from DepositAccounts.com to Bankrate.com and Nerdwallet. 

Tumin recommends keeping your checking account with the bank you're currently using, but shop around for a better savings account rate from an online bank. 

Once you find a new service, you can link your old checking account to the new online savings account, he said. That will allow you to transfer money between the accounts more easily, while also enjoying the higher rate from the online savings account. 

But read the fine print and make sure you know what services are offered — or aren't offered — by the online bank, Tumin recommended. Sometimes smaller online banks don't have the same services or ability to handle complex transitions as bigger brick-and-mortar institutions to, he noted. For instance, some might not be able to handle joint accounts or trust accounts.

"Most online banks are raising rates, maybe not as fast as the Fed, but they have pretty substantial rate increases," Tumin said. "You'll see higher rates than if you keep it at a brick and mortar bank."