The Fed Raised Rates. Why Your Savings Rate May Lag Behind

On September 16, 2026, the Federal Reserve raised its target range for the federal funds rate by a quarter point, to 3.75% to 4%. For savers, that makes higher deposit rates more likely, but it does not set them. The FDIC's latest national average savings rate, 0.37%, was published September 21 but measured at the end of August, before the hike. Whether your rate moves depends on how much your bank needs deposits, not on the Fed alone.

Key takeaways

The Fed sets a target range for an overnight bank-to-bank rate. Banks then choose their own deposit rates, and many pass on only part of a hike, with a delay.
The FDIC's September 21, 2026 release, based on end-of-August data, put the national averages at 0.37% for savings, 0.63% for money market accounts and 1.73% for 12-month CDs, well below the 3.50% to 3.75% range in force at the time. These figures do not yet reflect the hike.
Money market funds are different from bank accounts: their yields track short-term market rates, and they are not FDIC-insured.
Compare accounts by APY, the figure that includes compounding. On $10,000, the gap between 0.37% and an assumed 4% is about $363 a year.
The next FOMC meeting is October 27-28, 2026. The FDIC's next monthly update, due October 19, should be the first to use data from after the hike.

What it means for you

The impact depends on where your money sits. The sections below explain each point.

Savings in an account paying near the national average: A Fed hike does not automatically raise your rate. The latest national average is 0.37% (pre-hike data), and your bank's own rate sheet is the only place to see whether it changed. See the example further down.
High-yield savings users: Your rate is variable and can change at any time, up or down. A hike makes increases more likely, but the pace is the bank's choice.
CD buyers deciding whether to lock in: A CD fixes the rate for its term. The national 12-month CD average of 1.73% was well under the 4.16% one-year Treasury yield the FDIC lists for the same data date, so shop offers rather than assuming the average reflects what is available.
Money market fund holders: Fund yields generally reflect short-term market rates, so they tend to track a Fed move more closely than bank savings rates. Funds are not FDIC-insured.
People with an emergency fund: Access and insurance matter more than a fraction of a point. Check that balances sit within FDIC limits.

From Fed decision to your rate

The Fed does not set the rate on any savings account. Its policy committee, the FOMC, sets a target range for the federal funds rate, the overnight rate banks charge one another. The September 16 statement, approved 12-0, moved that range from 3.50%-3.75% (the level held at the July 29 meeting) to 3.75%-4%. The committee said inflation "remains elevated" and that the action would support a timelier return to its 2% goal.

When the target rises, holding money in a low-paying account becomes less attractive to customers, so banks face pressure to raise what they pay. They tend to raise it only as much as they must.

Deposit beta: the share a bank passes on

Economists measure the pass-through with a "deposit beta." The New York Fed's Liberty Street Economics blog (November 21, 2022) defines it as the share of a change in the fed funds rate that banks pass to deposit rates. Its example: if the target rises 50 basis points (a basis point is one hundredth of a percentage point) and a bank raises its deposit rate 25 basis points, the beta is 50%.

The post measures betas as industry-wide averages across interest-bearing deposits, not for any one account. As an illustration only, at a beta of 50% the Fed's September quarter-point move would lift a savings rate by about 0.125 percentage points, or $12.50 a year on $10,000. At 100% it would be $25. A lower beta means savers capture less of each hike.

Why banks lag behind the Fed

The same New York Fed post reports that, according to prior research, betas are lower when rates are rising than when they are falling. It also found that in the tightening cycle that began in 2015, the cumulative beta started near zero and never exceeded 40%, while in the cycle that began in 2004 it approached 60%. The authors summarize the long-run pattern in one sentence: "Since the 1990s, the response of deposits to monetary policy has been attenuated."

The post points to two forces, one on each side of the deal:

Deposits are plentiful (the bank's side). Deposits have grown relative to loans and other invested assets, so a bank with more deposits than it needs has little reason to compete harder for more.
The deposit gap (the saver's side). The gap between the fed funds rate and the deposit rate is what a depositor gives up by leaving money in the account. When rates were near zero it was negative and deposits were attractive. As the target rises, the gap widens and customers have more reason to look elsewhere, which eventually pushes banks to raise rates.

So two banks can react differently to the same Fed decision. How fast any one bank reacts is not published as a rule; its own rate sheet is the evidence.

What the FDIC's national rates show

The FDIC publishes monthly national averages for deposit products, covering insured banks and credit unions and weighted by each institution's share of domestic deposits.

The FDIC says the rates are based on information available on the last business day of the prior month. So the latest release, dated September 21, 2026, reflects rates at the end of August, before the hike. Updates come on the third Monday of each month, which falls on October 19, so readers may see newer figures by the time they read this.

Product	National rate	National rate cap
Savings	0.37%	4.38%
Money market	0.63%	4.38%
12-month CD	1.73%	5.74%

Source: FDIC national rates and rate caps, as of September 21, 2026.

The "rate cap" column is easy to misread. It is a regulatory limit that applies to institutions that are less than well capitalized, restricting how far above the market they may offer. For savings and money market accounts (deposits with no maturity date), it is the higher of the national rate plus 75 basis points or the federal funds rate plus 75 basis points.

The savings and money market caps confirm the timing. For these accounts the FDIC uses the effective federal funds rate, which the September table lists as 3.63%, inside the pre-hike 3.50% to 3.75% range. The October 19 release, based on end-of-September data, should be the first that could show a response, since September 30 came two weeks after the decision.

The averages also depend on balance size. The FDIC bases the savings figure on the $2,500 account tier, and the money market and CD figures on an average of the $10,000 and $100,000 tiers.

Worked example: $10,000 for a year

Illustrative example. The 0.37% figure is the FDIC national savings average above (a $2,500-tier, pre-hike figure, applied here to $10,000 for simplicity). The 4.00% figure is an assumption chosen for round numbers, not a rate published by any bank. Assume the full $10,000 stays in the account for 365 days with no deposits or withdrawals, and treat each rate as an APY (the yearly return including compounding).

Interest = Balance x APY

National savings average:  $10,000 x 0.0037 = $37.00
Assumed high-yield rate:   $10,000 x 0.0400 = $400.00
Difference:                $400.00 - $37.00  = $363.00

Balance is the starting deposit and APY is the stated annual yield. The assumed 4% account earns about 10.8 times as much, a difference of $363 over the year. The FDIC's national money market figure (0.63%) gives $63 and the 12-month CD figure (1.73%) gives $173. Figures are before tax, and a variable rate that moves during the year changes the result.

The lesson from the numbers is that the account you hold matters more than the Fed's last quarter-point. A quarter-point hike, passed on in full, is worth $25 on $10,000. The gap between the average account and a 4% account, $363, is about 14.5 times that amount. The comparison holds whenever the gap between two accounts is wider than a quarter point.

APY, APR and what to compare

Federal rules define the terms. Regulation DD, which implements the Truth in Savings Act, defines the annual percentage yield as a percentage rate reflecting the total interest paid on an account, based on the interest rate and the frequency of compounding over a 365-day period. The regulation's Appendix A formula is:

APY = 100 x [(1 + Interest / Principal)^(365 / Days in term) - 1]

Principal is the amount assumed to be deposited at the start, Interest is the total dollar interest earned for the term, and Days in term is the actual number of days. Regulation DD applies to banks and other depository institutions but not to credit unions, which follow a parallel National Credit Union Administration rule (12 CFR Part 707) issued under the same law. APY is the figure for comparing deposit accounts. "APR" is a borrowing term: Regulation DD does not define it as a yield, and says the plain interest rate (which does not reflect compounding) may, but need not, be called the "annual percentage rate" in certain disclosures.

Money market funds and T-bills

Money market funds work differently from bank accounts. The SEC's investor education office (in a bulletin dated November 4, 2024) says they are a type of mutual fund that invests in liquid, short-term debt securities, and that their yield changes over time and generally reflects changes in short-term interest rates. Treasury bills are one public gauge of those rates. On October 16, 2026, Treasury's daily bill rates were 3.95% (4-week) to 4.24% (52-week) on a bank discount basis, and 4.02% to 4.44% on a coupon-equivalent basis, an annualized yield based on the price paid, which is closer than the discount figure to how deposit yields are stated.

Those market yields sit far above the 0.63% national money market deposit average. A fund's yield generally reflects short-term rates, while a bank account pays what the bank chooses. The SEC also notes that funds charge fees, which come out of what the fund earns. The tradeoff is protection. The SEC's investor bulletin on money market funds states that money in a fund is not guaranteed by the FDIC like bank accounts are, and that there is a risk of losing some or all of the money invested. Money market deposit accounts at banks are covered, up to the legal limits.

Frequently asked questions

When does the Fed meet next?

The FOMC's 2026 calendar lists meetings on October 27-28 and December 8-9. As of October 17, neither had been held. The September meeting was the sixth of the year, and it was the one that raised the target range.

Do savings rates fall as slowly as they rise?

Research suggests they do not. The New York Fed post says prior research finds deposit betas are lower when rates are rising than when they are falling, so savers should not assume a cut will be passed on as slowly as a hike. That finding is about industry averages, and an account already paying close to zero has little room to fall. The post does not give a timetable for either direction.

Does the FDIC rate cap limit what my bank can pay?

Only if the bank is less than well capitalized. The FDIC page describes the restrictions as applying to those institutions, which generally cannot solicit deposits at rates that significantly exceed the prevailing market. A well-capitalized bank is not bound by the cap.

Is my savings protected if rates fall or my bank fails?

Rate changes do not affect insurance. The FDIC states that deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category. It covers deposits, not non-deposit investment products such as mutual funds, even when a bank sells them.

Is APY or the stated interest rate the better number to compare?

APY, because Regulation DD calculates it from the interest rate and the compounding frequency, so two accounts can be compared on the same footing. A plain interest rate ignores compounding and can understate what an account pays over a year.

A short checklist for this week

Find your account's current APY on the bank's own rate page or statement, and note the date.
Compare it with the FDIC national figure and with offers from other FDIC-insured banks, using APY for every account.
For each balance, multiply by the APY to see the yearly dollars at stake, as in the example above. If the gap is small, switching may not be worth the effort.
Check that each bank's balance is within the $250,000 limit for its ownership category.
Re-run step 3 after the FDIC's October 19 update and the October 27-28 FOMC decision.

This article is general education, not personal financial advice. Rates, rules and fees vary by institution and change often, so confirm current terms with the provider.