For some online bank customers, not all high-yield savings accounts are equal

No one knows when the Fed plans to cut rates. But if you were looking to benefit from the high interest rates, your best bet would usually be to open a high-yield savings account. However, you might want to check the fine print before you do.

Customers of a few online-centric banks are noticing that the interest rates in their accounts aren’t always keeping pace with the interest rates their banks advertise. Newer customers were getting a higher interest rate for their accounts while existing customers wouldn’t see their rates move. A few customers are now filing class action lawsuits.

Rachel Louise Ensign, a reporter for The Wall Street Journal, recently wrote an article about customers affected by the lower-than-advertised interest rates. Ensign says that customers should be vigilant. She told “Marketplace” host Amy Scott, “Make sure you’re checking your statements or your online banking portal and seeing what your rate is there.”

Below is an edited transcript of their conversation.

Amy Scott: You open your story with an example of someone who started a savings account at an online bank in order to earn more interest as the Fed was raising rates, only to find out, his interest rate didn’t go up. What happened?

Rachel Ensign: So basically, what this bank was doing was kind of pulling these technical tricks to make it so that, you know, you’d open an account, you think you were getting a really high rate, but then they would never increase your rate. You know, with the Federal Reserve increasing interest rates, people kind of expect in these accounts, your rate will keep going up. But this man had a rate that he thought was really good. And then, you know, expected that it would keep going up, but just didn’t keep that close of an eye on it. And then realized a while later that it had, in fact, not increased at all, even though the bank was advertising a much higher rate for new customers.

Scott: How common is this?

Ensign: Well, it is pretty common. We had a story a few weeks ago about Capital One, which is an enormous, online-centric bank, and this has happened to a lot of their customers. So it’s something that with rates going up is happening more and more.

Scott: You talked about one of these banks, UFB Direct, which was advertising higher rates than it was giving older customers. What makes UFB and other online-centric banks different from say, the big traditional banks our listeners might be familiar with? 

Ensign: Yeah, well, this model of being an online bank kind of started out in the early days of the Internet, and a lot of people flocked to these early online banks because they generally offered much higher interest rates than traditional brick-and-mortar banks. And that has largely remained the case.

Scott: It seems like there’s been an explosion of these banks. One of my colleagues was talking about seeing all the ads on the interstate for online banks. What do you think is driving that growth?

Ensign: Well, the main thing that’s driving that growth is that, for the first time, you can actually earn real interest on your money, especially if you’re a person with a lot of savings. After the financial crisis, interest rates were really, really low for a very, very long time, basically, until 2022. During that period, you might use an online bank to get like 2% on your savings, and that was good. But that’s really not much money. So a lot of people just thought, “I mean, who cares, I’m just going to leave my money at my big bank, even though they’re paying me nothing.” But now, with the Federal Reserve having raised rates a lot since early 2022, you can really earn a significant amount, especially if you use one of these online banks. 

Scott: How have the banks responded to your stories, and to these complaints that they’re basically offering much higher rates to new customers than they’re giving to existing customers?

Ensign: Well, a lot of the customers themselves have reached out to the banks and asked for back interest. And I haven’t heard of a single situation where they have given that. I mean, they will increase the rate on your account, if you say, “Hey, why am I earning this low rate and not the high rate that you’re advertising?” You know, the banks will say, “Okay, well, let’s get you in that high-rate account.” And you know, each bank has responded differently to us. Obviously, we contacted them for comment. The bank that is doing this in kind of the most extreme manner, UFB, they didn’t respond to us at all.

Scott: So what can customers do about this, if anything?

Ensign: I think people just need to be pretty vigilant about their interest rates. Make sure you’re checking your statements or your online banking portal and seeing what your rate is there. You might not be going to the actual website all the time. And that seems to be how this fell through the cracks for a lot of customers.