How high-interest savings accounts go from yielding 4% to 0.05% while you aren’t looking – one saver fleeced by bank saw monthly earnings drop from $160 to just $2

Banks are cheating Americans by quietly moving money from high-interest savings accounts to savings accounts that earn only 0.05 percent interest.

A US Bank customer found he went from $160 a month to just $2 after his account was transferred to a new one at maturity.

The problem arises with a type of fixed-term account known as a certificate of deposit, or CD, which pays a fixed interest rate for a set period of time.

Americans poured $2 trillion into CDs to reap higher returns after interest rates started rising in early 2022. It was common for accounts to offer a 5 percent return.

But there are two big advantages for these savers. Once CDs mature, usually after a few months to several years, about half are deposited into new accounts – which typically pay a pitiful interest rate of just 0.05 percent.

A CD is a product offered by banks and credit unions that allows individuals to deposit money for a fixed period of time, during which time interest is earned at a predetermined rate

To make matters worse, there are then early withdrawal fees to exit these low-paying accounts.

John Furlong, a construction manager, for example told the Wall Street Journal he signed up for a $50,000 CD with US Bank last year with an advertised interest rate of 3.85 percent.

But when the 62-year-old checked the deposit in February, he discovered it earned only 0.05 percent interest on a new CD.

62-year-old John Furlong earned $160 a month to $2 after investing in a CD last year

His money now makes $2.15 a month until the new CD comes out in October. On the original CD he made about $160 a month.

Most CDs have a grace period of seven to 14 days before the money moves to another. According to Curinos, a bank data collection company, about half of all CDs are automatically rolled into new ones and locked again.

The Consumer Financial Protection Bureau, a government-backed watchdog, requires banks to notify depositors if their CD is going to be rolled over, and what the new interest rate will be.

But according to Furlong, he didn’t know his new CD would yield such a low interest rate and assumed it would go to another one with similar rates.

When the Wall Street Journal asked about communications about the new rate, US Bank said it is changing the way it communicates CD renewal information to customers to be clearer.

Americans have invested about $2 trillion in CDs since the Federal Reserve began raising interest rates in March 2022. The chart shows CDs and other term deposits, excluding those in retirement accounts.

Greg McBride, chief financial analyst at Bankrate, that sets rates offered on various CDs, savers must be careful about strategically moving their money.

“You can easily put your money elsewhere if the renewal rate isn’t competitive with the top returns out there,” he said.

While the practice of flowing money into low-interest CDs isn’t new, it has become a bigger problem as they become more widely known.

Greg McBride, chief financial analyst at Bankrate, said savers should be careful about strategically moving their money

High inflation after the pandemic forced Americans to look for new places to put their money, causing CDs, which offered rates of more than 5 percent last year, to surge in popularity.

And according to Curinos, about half of all new deposits that have flowed into banks since the beginning of 2023 have been CDs.

“With CDs on investors’ radar for the first time in more than 15 years, or in some cases ever, savers are more likely to encounter them at renewal,” McBride said.

“It’s nothing new, but something many more savers are now facing,” he added.

Such practices are not exclusive to CDs. This year Capital One was sued in a class action lawsuit alleging that it quietly froze interest rates on customers’ high-yield savings accounts.

John Furlong, 62, invested $50,000 in a CD at US Bank last year. The original rate was 3.85 percent, but his money was converted into a new CD that yielded only 0.05 percent.

Savings account holders sued the bank after learning they were earning only 0.3 percent interest instead of more than 4 percent.

Interest rates on savings accounts generally rise or fall in line with the Federal Reserve’s benchmark interest rates.

When the Fed began raising rates from about 0.25 percent in March 2022 to more than 5 percent in April 2023, holders of high-interest or high-yield savings accounts at most other banks enjoyed significantly higher interest on their deposits.

But customers with Capital One’s “360 Savings” accounts claim that instead of raising interest on those accounts, the bank froze the interest rate at a record low of 0.3 percent and opted not to notify account holders.