I earned $20 more from my savings in July than in June. here’s why

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It’s not because I added more money to my account.

Key points

  • The advantage of keeping money in a savings account is to earn interest on it.
  • Interest rates have risen and many savers are reaping the benefits.
  • Now might be a good time to upgrade to a higher interest account.

As someone who’s had a solid emergency fund tucked away in a savings account for many years, I’m used to earning minimal interest on my savings. But at the end of July, my monthly interest payment was about $20 more than it was in June. That’s a pretty big leap, considering I didn’t add any money to my savings account in July. Here’s why that payout has increased.

Interest rates are on the rise

Since the beginning of the year, inflation has taken its toll on cash-strapped consumers. The problem has become so severe that many people are piling up giant tabs on their credit cards just to cover the cost of essentials.

The Federal Reserve is desperate to slow the pace of inflation and is raising interest rates in an effort to induce consumers to cut spending. The logic is that if borrowing becomes more expensive, consumers will start to spend more cautiously. This could give supply chains a chance to catch up with buyer demand, ending the era of runaway inflation.

For one thing, higher interest rates aren’t good for consumers because they make everything from credit cards to HELOCs to personal loans more expensive. On the other hand, when the Fed raises interest rates, consumers don’t just get the small end of the stick. They also tend to enjoy higher interest rates on savings accounts. And that’s what happened to me in July.

Even though I didn’t add any money to my savings account in July, the amount of interest I received increased significantly. As a result, I closed the month with an additional $20 to my name compared to June.

Of course, that $20 in interest is kind of a mixed bag. Interest income you earn in a savings account does not belong to you tax-free. Rather, it is taxable income, which means that the IRS will receive a share of it. But still, if I have to keep money in a savings account, I’d rather earn more interest than less. And so all in all, I’m happy to finally see savings account rates go up.

A great way to take advantage of rising rates

If you have money in a savings account, it’s worth seeing what interest rate you’re earning on it, then digging to see how it compares to what other banks are paying. There may be an opportunity to raise your interest rate even further by switching banks.

In fact, online banks generally pay more interest on savings accounts than physical banks because they don’t incur the same operating costs. As such, now could be a good time to switch to online banking.

It’s also a good idea to keep an eye on interest rates over the next few months. The Fed is probably not done with its rate hikes, and if it keeps raising interest rates, savings accounts could start paying even more. This is a situation you will definitely want to track, to ensure that you are getting the best deal to store your money.

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