Q: The Federal Reserve keeps raising interest rates. Why aren't banks paying more for savings accounts and CDs?

The Federal Reserve has raised interest rates by 150 basis points (1.5%) since the current rate-hike cycle started in late 2015, so you may have expected that the interest rates banks offer on savings accounts and CDs would rise in a similar fashion.

However, you'd be wrong. According to the FDIC, the national average savings account interest rate has risen just 1 basis point since September 2015, from 0.06% to 0.07%.

CD yields have gone up a bit more, but still haven't quite kept pace. The average rate on a 12-month CD has grown by 15 basis points, while a five-year CD can be expected to come with a yield that's 20 basis points higher than before the Fed's rate hikes started.

The short explanation is that while deposit interest rates tend to move with the Federal Funds Rate, there's no direct link. In other words, banks don't have to pay more simply because the Fed decides to raise rates. Banks set their own savings account rates, and there are several factors that weigh on their decision in addition to benchmark interest rates.

If the Federal Reserve continues to raise interest rates as expected over the next few years, it's likely that we'll see deposit yields continue to move upward. Just be aware that it's not a perfect correlation.