I Earned $20 More on My Savings in July Than in June. Here’s Why

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

Key points

The upside of keeping money in a savings account is earning interest on it.
Interest rates have been on the rise, and a lot of savers are reaping the benefits.
This may be a good time to switch 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 roughly $20 more than it was in June. That’s a really big jump, considering that I didn’t add money to my savings account in July. Here’s why that payment went up.

Interest rates are on the rise

Since the start of the year, inflation has been wreaking havoc on cash-strapped consumers. The problem has gotten so bad that many people are running 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 it’s raising interest rates in an effort to get consumers to cut back on spending. The logic is that if borrowing becomes more expensive, consumers will start to spend more cautiously. That could give supply chains a chance to catch up to buyer demand, thereby bringing the days of rampant inflation to an end.

On the one hand, higher interest rates aren’t a good thing 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 short end of the stick. They also tend to benefit from higher interest rates in savings accounts. And that’s what happened to me in July.

Even though I didn’t add money to my savings account in July, the amount of interest I collected rose substantially. As a result, I closed out the month with an extra $20 to my name compared to June.

Of course, that $20 of interest is sort of a mixed bag. The interest income you earn in a savings account isn’t yours to enjoy tax-free. Rather, that’s taxable income, which means the IRS will get a piece of it. But still, if I’m going to keep money in a savings account, I’d rather earn more interest on it than less. And so all told, I’m happy to see savings account rates finally going up.

A great way to benefit from rising rates

If you have money in a savings account, it pays to see what interest rate you’re earning on it, and then dig around to see how it compares to what other banks are paying. There may be an opportunity to grow your interest rate even more by switching to another bank.

In fact, online banks commonly pay more interest on savings accounts than physical banks, because they don’t bear the same operating costs. As such, it could be a good time to make the move to an online bank.

It’s also a good idea to keep tabs on interest rates in the coming months. The Fed probably isn’t done with its rate hikes, and if it keeps raising interest rates, savings accounts might start to pay even more. That’s a situation you’ll definitely want to track, to make sure you’re getting the best deal on storing your money.