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Sadly, we don’t all get visited by the magical interest rate fairy. 

Image source: Getty Images

The macroeconomics behind all of the recent interest rate hikes can be quite interesting. But not for the average consumer worried more about their personal finances than the inner workings of the Federal Reserve.

For many folks, the interest rate increases have two main results — one bad, one good:

The Bad: Loan and credit card interest rates go up. This means mortgages get more expensive, credit card debt gets more expensive… basically, any kind of debt gets more expensive.

The Good: Bank account interest rates go up. This means you earn more interest on the money in your savings accounts. Rates on interest-bearing checking accounts may even go up.

Unfortunately, the rate at which these two results occur varies a lot. Debt interest rates tend to go up more or less immediately. But the rate on your savings account could take months to go up — if it goes up at all.

Not every bank will boost savings rates

The sad fact is that you can’t just assume your bank will increase interest rates on your savings account automatically. Some banks won’t bother to raise interest rates on their savings products no matter how high the Fed pushes rates. Even if they do raise rates, they may not go as high as their competitors.

That’s why Credit Karma CEO Ken Lin says we all need to be aware of where our accounts stand.

“I think this is an opportunity for most consumers to really be more cognizant, more thoughtful around their finances,” he said, “because we assume when rates are going up, that the money in our savings accounts is going up, and that’s generally not the case. You really need to push your bank to offer you that higher yield, or even open a new account elsewhere.”

Banks use interest to drive deposits

So, why do some banks raise rates while others do diddly-squat? It’s because they simply don’t need to.

While it’s certainly true that banks can make money off of deposit accounts, that money often pales in comparison to the money they make with things like loans and investments. Deposits are important, because that’s often where the capital for these loans comes from. But if a bank has plenty of capital, they don’t need more deposits.

The interest you earn on your savings account is paid for by those other, higher-profit enterprises. When banks want more deposits, they raise rates. If they don’t need those extra deposits, they reduce rates — or, in this case, fail to increase them with the market.

When a new bank account is worth the hassle

Taking the time to compare your rates with those of similar bank accounts from other banks can really pay off. It’s not uncommon for savings accounts with big banks to have rates well below market average — and that average is already less than 0.2%. In contrast, some banks are offering rates 10 and 20 times higher than average.

Yes, moving your accounts to a new bank is a lot of hassle. You need to make transfers, close accounts — which often requires an in-person trip to a branch — update your direct deposits… the list goes on.

But what if moving banks increases your interest earnings by 2%, 3%, or more? Depending on the size of your deposits, that could mean hundreds in extra interest income.

And don’t discount the potential for bonuses. Many banks offer cash bonuses for opening a new account (and jumping through a few, often minor, hoops). These bonuses can be worth a few hundred bucks in and of themselves.

Even if you don’t move banks, you should at least have all the facts. Follow Lin’s advice and do a little digging into your bank’s interest rates. You may get a pleasant surprise — or you may get the motivation you need to jump ship to a better opportunity.

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