My Savings Account Interest Rate Went Up, but I'm Not Putting More in It. Here's Why

Why hasn't a higher interest rate enticed me to put more in savings?

Like most people, I have some money in a savings account. I received an email from my bank recently that said my interest rate on the account was going up. This isn't surprising in light of the fact the Federal Reserve recently raised interest rates.

While a higher rate is good news, even if it was anticipated, it's not going to change where I'm putting my cash and I will not be depositing any more than planned in savings despite the fact that the money I put into the account will now earn higher returns.

Here's why I'm not changing my deposits and putting more money into savings to take advantage of the higher rate.

1. The APY is still really low

Although I am happy that my interest rate went up on my high-yield savings account, it only increased to 0.75% APY. That's still not a great return on investment, especially with inflation topping 8.5% right now. Since I am not earning a lot on the money that is invested, all of the dollars in my savings account are currently losing a lot of buying power -- and that will remain true even with my new higher rate.

The reality is, I know I can invest in assets that have a low risk of loss over time and that will produce a much better interest rate. A good example is an S&P 500 index fund, which has consistently provided 10% average annual returns over time. That's a much better return than any high-yield savings account can offer, and with pretty minimal risk since an S&P 500 fund gives me exposure to 500 of the largest, most well-known companies in the U.S.

2. I'm already investing the amount I need for short-term goals

Another big reason why I'm not increasing my savings is that I've already decided how much to contribute to that account to accomplish my goals and I'm putting the amount I need into my account.

See, I am willing to accept the low returns that savings accounts provide on some of my money because I will need it soon or I want to be able to access it whenever I want. I don't want to put my emergency fund in the stock market, for example. I also don't want to invest funds I'll need within the next five years since I might have to take the money out when the market is down, and thus could end up with losing investments since I can't wait for a recovery.

The amount I put into savings is not determined by the APY I'm offered, but rather by the amount of money I've decided needs to be in an account where it isn't at risk. And that calculation doesn't change just because my APY is a little bit higher.

A slight bump up to 0.75% APY is not nearly attractive enough to get me to use a savings account as an investment vehicle rather than as a place to stash cash for the short term, so my financial habits won't change at all despite this good news of a higher rate.