- The Fed sets the federal funds rate — what banks charge each other to borrow overnight.
- Your savings rate does not automatically follow; your bank decides whether to pass changes on.
- Big banks lag on the way up and cut fast on the way down.
- Online banks and credit unions respond to rate changes faster because they compete harder for deposits.
What the Fed Actually Does
The Federal Reserve's Federal Open Market Committee (FOMC) meets eight times per year. When you hear "the Fed raised rates," the FOMC voted to change the target range for the federal funds rate — the overnight lending rate between banks.
This rate does not directly control your savings account. It influences it through several steps:
- The Fed sets its overnight rate target.
- Banks adjust what they charge each other to borrow reserves.
- Banks then decide — independently — what to pay depositors.
- Competition between banks determines how much of the Fed's move gets passed through to consumers.
Step 4 is where most people get disappointed. A big bank with millions of captive depositors has no obligation to raise your savings rate just because the Fed raised its target. They often don't — or they raise it by a fraction of the Fed's move.
The Rate Cycle in Practice
Between March 2022 and July 2023, the Fed raised rates by 5.25 percentage points — the fastest tightening cycle in 40 years. Here is how different institution types responded:
| Bank | Product | APY |
|---|---|---|
| ★ UMB Bank | UMB Retail Money Market | 3.71% |
| Barclays Bank Delaware | Barclays Tiered Savings | 3.50% |
| U.S. Bank | Bank Smartly® Savings (Relationship Rate) | 3.50% |
| Marcus by Goldman Sachs | Marcus Online Savings Account | 3.40% |
| Synchrony Bank | Synchrony High Yield Savings | 3.30% |
Rates sourced directly from institution public rate sheets and verified weekly by REBOLST. Compare all live rates →
Figures above are illustrative examples, not current rates. See live rates on REBOLST.
The four biggest U.S. banks passed through about 8 cents of every dollar the Fed raised. Online banks passed through more than 80 cents. Same rate hike — completely different outcome depending on where you banked.
Why the Asymmetry Exists
Big banks behave asymmetrically across rate cycles:
- When rates rise: slow to raise deposit rates. They pocket the spread between loan income (which reprices quickly) and deposit costs (which they hold down).
- When rates fall: fast to cut deposit rates, sometimes before the Fed even acts.
Online banks face a different market. A depositor sitting on $50,000 will move it for an extra 0.5% — that is $250 per year. Rate-sensitive depositors force online banks to stay competitive.
Check REBOLST's rate table after every FOMC meeting. If your bank has not raised its rate within 30 days of a Fed hike, it probably will not. That is a signal to look at alternatives.
The Fed sets the ceiling. Your bank decides what floor to pay you. Most big banks set that floor as low as they can get away with. The solution is choosing a bank that has to compete for your deposit.