The Powell Fed has completed its November meeting with its sixth rate hike of 2022, bringing the Fed Funds rate to almost 4% for the first time in a generation. The Fed still isn’t finished with rate hikes as it moves late to get a handle on soaring inflation that has now permeated the US economy and shows no signs of moderating.

The Fed says that ongoing rate increases are appropriate, but that it will begin to assess the cumulative tightening of monetary policy. Even if the 75 basis point moves are over, it is very possible that we will see a further 50 basis point hike in December and one or two more hikes in 2023 before beginning to pivot.

For an economy that has grown addicted to a very cheap cost of capital, the Fed’s moves continue to be difficult to swallow, and that is why the Fed is now speaking about the cumulative impact of its actions. And, whatever the Fed's goals are, as the Fed gets closer and closer to its peak funds rate (what is now being referred to as a “terminal rate”), financial markets are breathing a sigh of relief.

It is worth emphasizing again that the Fed was late to react to clear signs of incipient inflation in 2020 and 2021, with Jerome Powell and Treasury Secretary Janet Yellen referring to pricing pressure as transient and insisting on holding the Fed funds rate at zero well into 2022 which further fed the inflation beast that they are now trying to tame.

It also bears repeating that nobody has seen inflationary pressures that are as acute as those we are now facing since the 1970s. While many financial analysts continue to believe that the terminal rate will be no higher that 5%, there continues to be a risk that the Fed may need to move much higher to get things under control, especially since Powell himself believes that the only precedent available to him is Fed Chair Paul Volcker’s actions in the 1970s.

Against that backdrop, I am frequently asked whether online savings rates make sense, given that the top rates lag below not only US Treasuries but short term brokered CDs. The answer is that they do until we have greater certainty that the Fed is nearing completion of the cycle. Going into today’s move, the top online savings rates were at or just over 3.50% APY, and it seems likely that they will go above 4% before the end of the year. The incremental gain in buying even a short brokered CD seems to be outweighed by the risk that we still haven’t priced in rates where we need to go to control inflation.

(Take it from me, I personally bought 2.65% 6-month brokered CDs less than three months ago, and am very glad that I acted in moderation!)

Bottom line: Continue to ride the wave by seeking the best online savings rates here.

The Federal Reserve has raised the Fed Funds target rate by 75 basis points to a target rate of 3.00% to 3.25%. This is the highest it has been since 2008.

The rate represents the third successive 75 basis point rate increase as the Federal Reserve moves desperately and late to try to get control of inflation in the US. The rate is now dramatically higher than it was at the beginning of 2022, at which point Fed Chairman Jerome Powell was still holding its target at 0 to 0.25% as part of its COVID-19 emergency stimulation measures.

More importantly, the Fed has sharply raised its Fed funds target for the end of 2022 and into 2023. Its target rate for the Fed Funds future rate in three months time is now 4.40% (versus earlier guidance of 3.40%), meaning we now have another 125 basis points or so of additional rate hikes in October, November and December. And, into 2023, the Fed will hold rates higher for longer to fight inflation.

As the Fed Funds rate increases and as liquidity is removed from the system, you should expect to see more competition for your cash. If you bank is not increasing its savings rate commensurately in order to stay competitive, consider moving to a more competitive online savings or money market account.

Most major online savings and money market rates can be opened in a matter of minutes through their website or mobile application. Compare the best rates among these online banks on BestCashCow here.

More than a decade ago, when GMAC Bank had just rebranded as Ally Bank, they ran a series of commercials designed to build the Ally brand around integrity of treating their customers equally, and not giving preferential treatment to new customers over existing customers. I’ve only been able to find a handful of these commercials on YouTube, but there were many more than these:

The commercials were outstanding. They set Ally apart as a bank that could be trusted to treat its customers fairly, and they also set a paradigm for the online banking industry which virtually all of Ally’s customers were forced to follow for more than a decade.

But, now as interest rates are increasing, some banks feel the need to attract new capital by offering new customers better rates than existing customers. This practice enables them to keep their cost of capital lower as rates rise. To be clear, it is perfectly legal to segment your market, but as Ally understood, it is just really bad business.

Here are four culprits who are at it already.

First, Flushing Savings Bank. This bank has been in the online space for quite a while and it operates IGoBanking, BankPurely and GiftsforBanking. The bank has a bit of a checkered history of moving rates around between the different banks in order to segment the brand (as does Emigrant Direct which does the same thing through the parent brands, MySavingsDirect and Dollar Savings Direct). Segmenting the market with different brands, however, is at least transparent. The IGoBanking and BankPurely brands have been increasing their rates, but the new rates are only available to new customers. I personally had been a customer for many years through one of the brands and when rates started to rise, I reached out and asked them to extend the new rate to me, and was invited to haggle for something midway) I obviously closed the account.

Second, Sallie Mae Bank. This bank has been competitive over the years, and this year as rates have started to rise, they’ve rolled out a whole series of No Penalty rates through a third-party broker that are much higher than those available to existing customers. I had been a customer for over a decade and when I asked them to make one of these products available to me, I received a curt email which made it clear that I was no longer valued as a customer.

Third, Goldman Sachs or Marcus or Goldman Sachs Marcus, or whatever they have decided to brand themselves this week, has been very competitive since the business was bought from GE Capital a few years ago, and always treated its customers very fairly. However, as rates began to increase in 2022, they decided to be competitive only for those customers who are hawking the bank to their neighbors and social media acquaintances (i.e., you only get their most competitive rate if someone signs up with your referral code). Those long-term customers who don’t have quite the following of a Kardashian are left out in the cold with an uncompetitive rate. Not exactly the kind of loyalty that you would expect from a brand like Goldman Sachs.

Ally’s ads of a decade ago were right! Banking is a people business and people expect to be treated fairly. We are in a rising rate environment and there are banks that are desperate for your hard earned capital. There is no reason to play gotcha and there is no reason to allow a bank that you’ve been loyal to for many years to give you anything but their best rate.

If that is happening to you, find a new bank here:

Did you have an experience where you were extended a lower rate than a new customer? Let us know below.