Why Your Savings Account Rate Isn’t Moving With the Fed

It is the result of a measured, partial transmission that regulators call the deposit beta, and it operates on a timetable set by bank treasurers, not by the FOMC calendar.

The Fed Moves, But Your Bank Decides How Much to Follow

The federal funds rate is the overnight interest rate at which depository institutions trade balances. It is the one number the financial press repeats endlessly. A saver’s core mistake is to treat it as a dial on the savings account. In reality, banks pass through only a fraction of each policy move. That fraction—the deposit beta—is defined by the FDIC as the sensitivity of a bank’s deposit interest expenses to a 1 percent change in the fed funds rate. A Federal Reserve paper that examined 11 monetary policy cycles across decades pegged deposit betas at or below roughly 50 percent. So if the central bank lifts rates by a full percentage point, the average bank raises its deposit costs by half a point or less, and often well after the fact.

The Benchmarks You Should Actually Watch

Two numbers sit between a Fed decision and a savings account. The first is the FDIC’s national rate, a weighted average of rates paid by all insured institutions by product type, with weights based on each institution’s share of domestic deposits. It is not a rate any one saver can walk in and claim. The second is the national rate cap: for non-maturity deposits, the higher of the national rate plus 75 basis points or the federal funds rate plus 75 basis points. The FDIC publishes those figures monthly, every third Monday. The caps exist primarily to restrain less-than-well-capitalized banks from bidding up deposits recklessly. A well-capitalized bank can sit under the cap indefinitely; nothing in the rule forces it to move when the cap rises.

Deposit Beta Is the Metric Banks and Regulators Actually Track

When a bank’s asset-liability committee meets, the conversation does not start with the fed funds target. It starts with the cost of funds the bank already has and the marginal cost it would incur to gather more. The deposit beta is the empirical measure of that relationship. The FDIC’s own guidance explains that beta captures the change in interest expenditure for a 1 percent change in the fed funds rate. The Fed paper added structure: funding beta is the ratio of the change in the funding rate to the change in the policy rate over a full cycle. Across all 11 cycles studied, the deposit beta sat at 50 percent or below. A beta of 0.5 means every dollar of deposit cost rises only 50 cents per dollar of policy tightening. The other 50 cents stay in the bank’s net interest margin until competitive pressure forces the hand.

Why Some Banks Reprice Faster Than Others

The FDIC’s rate-cap framework offers a window into this divergence. A less-than-well-capitalized institution may use a local rate cap instead of the national rate cap for deposits gathered from within its local market area. That means a bank straining its balance sheet can, and often does, pay above the national average to keep local funding. Meanwhile, a large institution with deep deposit share may let its posted rates languish near the national floor. The FDIC’s historical rule materials describe the national rate as the average rate paid by all insured institutions for deposits of similar size and maturity. By definition, half the banks are above the average and half below. A saver whose bank has no pressing need for incremental deposits gets the below-average outcome for months—sometimes years—after the first rate signal.

The Asymmetry That Frustrates Savers

The pass-through is not just slow; it is lopsided. Early studies collected by the IMF in 2003 found that deposit-rate pass-through was lower when market rates were rising than when they were falling. For a saver, that means the rate creeps up when the Fed tightens and slides down quickly when it eases. More recent evidence has complicated the picture. A study in the International Review of Finance examined euro area data and reported that the long-run pass-through from bank funding costs to deposit rates was strong when funding costs rose and substantially weaker when they fell—the opposite pattern. The conflicting findings mean the direction of the asymmetry may depend on the cycle, the jurisdiction, and the time horizon. What has not changed is the existence of asymmetry itself. The deposit rate does not move in parallel with the policy rate in either direction.

What to Compare, and What to Ignore

Comparing a savings account APY to the federal funds effective rate is like comparing a mortgage rate to the 10-year Treasury and expecting them to be equal. They are connected, but they are not the same instrument. The FDIC national rate is the proper benchmark for an existing account, precisely because it represents an average of what other banks actually pay, not a promotional teaser for new money. The national rate cap is a regulatory ceiling for weaker institutions, not a promise. And the fed funds rate is simply the overnight wholesale rate; it is neither a floor nor a ceiling for a retail deposit.

Deposit pricing is engineered to protect the bank’s funding position first. The saver’s lag is built into the design. When the cycle turns and rates fall, the same mechanism that held the APY down on the way up will work swiftly in reverse. The account that barely budged during tightening will reprice downward without a month’s delay. That asymmetry—wherever the academic literature lands next—remains the hardest lesson a saver learns about how deposit beta really works.