How Fed Rates Affect Banks
When you hear that the Fed has raised (or lowered) interest rates, it refers to the federal funds rate, which is the target interest rate at which banks borrow and lend money to one another. This has a ripple effect across the entire economy.
How Banking Lending and Borrowing Works
When you — and all bank customers — make a deposit to your checking or savings account, your bank uses that money to make higher interest loans, such as personal loans, car loans, and mortgages. That’s a chief way banks make money.
Some Banks Lag Behind the Fed Longer Than Others
It may be that your bank will raise rates on your savings or checking account soon. They just haven’t done it in sync with the Fed’s announcements.
A Note About Brick-and-Mortar Banks
Big banks with lots of physical locations generally have higher operating expenses than online banks and, as a result, may be reluctant to offer higher rates that cut into profits.