High-yield savings account interest rates lawsuit investigation

Frozen rates on high-yield savings accounts: Who’s affected?

Did you open a high-yield savings account at Citibank, Axos, CIT, VIO or another bank expecting it to follow rising interest rates? You may instead have been frozen out of the soaring interest rate environment. 

When the large print in advertising promises one thing and the fine print can be read as “just kidding,” most people consider it a rip-off. When the rip-off is to your savings account, you, like many others, can be out thousands of dollars. Consumers say they thought they were reaping the benefits of climbing interest rates when they deposited their cash in high-yield variable savings accounts at CIT, Axos, Citibank, VIO and other banks online. In fact, their accounts were variable only up to a point, then frozen far below market rates without warning and even reduced at times.

How it works

It works like this: You open an interest-bearing savings account, advertised along the lines of “The WOW Account: Our Bank’s Highest-Paying Account.” The account is capped, as is standard industry practice. In this case, suppose it is capped at 1%, which is a decent percentage because interest rates are lower and you will make more money if they go up.

Then suppose the national interest rate goes up to 3% , and you reasonably expect that your interest rate goes up to 3%, as well, because your account is the one with the highest yield the bank said it offers and therefore rises along with the rise in interest rates.

But it doesn’t.

It turns out you are stuck with the old rate because the “WOW” account you signed up for is no longer available. Your account was declared something like a “legacy” account. Instead, the bank now advertises “The NOW Account,” slightly changing the name, raising the cap a bit, and promising that it is the highest-paying account the bank offers.

Nobody told you that you would have to get a new account to get the higher interest rate. And if you thought maybe you should, you were assured your old account’s interest rate was not in danger. True, it wasn’t in danger. It just stayed there earning virtually nothing while interest rates soared.

There are variations on this theme, consumers say. Banks can argue they legitimately make money by capping and closing the accounts while consumers didn’t actually lose anything. But consumers say that’s wrong: They lost money by being denied the interest rate to which they reasonably believed they were entitled.

Interest rates climbed

The Federal Reserve (the Fed), which sets target interest rates, began an aggressive push to raise them in 2022. Because lower interest rates are good for buyers and higher interest rates are good for savers, the Fed was encouraging savings to impede inflation.

The Fed raised interest rates 11 times from March 2022 to December 2023. Over a two-year period, interest rates rose by about 5 percentage points. Rates on high-yield accounts “generally rise alongside U.S. interest rates without depositors needing to take any action,” according to The Wall Street Journal.

Instead, the banks allegedly replaced older accounts that were earning less with newer accounts that paid more but were quickly frozen and replaced again, virtually every time the Fed raised rates.

“Only the biggest rate chaser that’s monitoring what the bank is offering every week and what their account is paying will notice that,” Ken Tumin, founder of DepositAccounts.com told The Wall Street Journal. “The vast majority of people won’t be that observant.”

“You think you’ll get a higher rate and it will keep going up,” Tumin said. “But there are games they play to get deposits without having to pay the highest interest rates.”

One customer who held a high-yield savings account estimates he was denied about $3,000 in the process, according to the Wall Street Journal report.

The article goes on to say an eagle-eyed CIT customer who caught on to the scheme changed his account and was reaping 5%, while others at the same bank were getting 0.25%.

Customers who thought they were saving wisely while keeping their money within reach may have found that stuffing their cash under the mattress was nearly as sensible.

Join a high-yield savings account lawsuit investigation

If your high-yield savings account paid below prevailing interest rates, you may be eligible to join a class action lawsuit investigation into Citibank, CIT, VIO and other banks that discontinued account offerings without warning.

Please fill out the form on this page to see if you qualify for a FREE case evaluation.