Avoid a Bank Robbery

Interest rates are on the rise -- and while that's not the best news for borrowers, it may not be glad tidings for certain lenders, either. Specifically? You, and everyone else with a savings account.

Mortgage rates have been inching up over the past year or two. The Federal Reserve has raised short-term rates 14 times in a row, leaving the federal-funds rate at 4.5%. In mid-2004, it had been a paltry 1%, its lowest level in 40 years. The average national rate for a 30-year fixed-rate mortgage was recently at 6.37%, up from around 5.5% in 2004.

Borrowers might comfort themselves that even at current levels, interest rates are lower than usual. This should be a welcome development for lenders, though -- and here I mean lenders like you and me. When we sock money away in bank accounts, we are essentially lending it to the bank to lend to others, with the expectation of interest payments in return. But while the rate for borrowers has risen significantly, we haven't seen a corresponding rise in our banking interest rates. Sure, our rates may have risen a bit -- but not as much as one might expect them to.

Through Bankrate (NASDAQ:RATE), I recently looked up some rates across the country, and found that for an interest-bearing checking account in Omaha, Wells Fargo (NYSE:WFC) was offering 0.2% interest. Citibank (NYSE:C) was offering 0.25%, while the First National Bank of Omaha paid 0.35%. (There's a mini-lesson in shopping around right there -- one bank's rate is nearly twice the other's, even when both are low.) Online banks Netbank and EverBank offered 2% and 3%, respectively, a compelling difference. (By the way, Bankrate is a Motley Fool Rule Breakers recommendation, up nearly 30% since being selected a few months ago. Try the newsletter for free and see what else has been recommended.)

Note that the record low average rate for checking accounts, recorded in 2004, was 0.27% -- see how some banks haven't been keeping up with interest-rate hikes?

Of course, for higher rates, you can opt for a savings account or money-market account (MMA). Recent rates in Omaha included 4.7% for an HSBC (NYSE:HBC) savings account, 3.93% for a Countrywide (NYSE:CFC) MMA, 3.92% for a Capital One (NYSE:COF) MMA, and 2.72% for the First National Bank of Omaha.

So what should you do? Shop around, if you're looking for the best interest rate deals at your bank. Know that interest-bearing checking accounts typically offer meager interest while requiring onerous minimum balances. Given that, consider using a non-interest-bearing checking account, if the trade-off in low minimums and other features seems worth it.

Drop by our Fool Banking center for more tips and guidance.

And learn more about banking prudently in these articles:

• Shopping for a Bank?
• How Big Is Your Checking Account?
• Simplify Your Financial Life
• Is It Time to Invest Abroad?
• Credit Union Pros and Cons
• Kicking a Bank's Tires

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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.