Am I rushing to get into a PhD program, and should do a Masters first? I am a Physics senior, and will be graduating with a BS in May 2018. Couple weeks back when I really got into the application process, I realized that I don't stand any chance of getting into a good physics PhD program. 

I have a good GPA in my major and average GRE scores but my application falls short when it comes to research experience. I tried to get involved in research at my undergrad institution, but none of the faculty members were doing research. I only have one summer research experience (at a renowned institute in Germany) but the work was mainly computational and doesn't directly relate to the research programs that I am applying for. For my senior project, I did a little bit of research in physics, but the results were not exciting at all (basically just imaging some quantum dots and finding the size distribution). 

It was when I was writing my personal statement that I realized that my application will not be competitive at all. Should I still apply to PhD programs at less-selective schools? I am personally inclined to do a Masters first, not only to get some research experience, but to also figure out which field of physics excites me the most. The only thing that worries me is that most Masters are not funded (although I have found a few in Europe that have scholarships). I really want to do my PhD from a good program and I feel that I am just not ready for it.

I am losing hope and any career advice at this point will be highly appreciated.
I am a PhD in the US and in my field Master's is completely useless, basically, a waste of time. You will still need to take classes in PhD, do TAship and many other things that are basically mandatory distractions and a Master's do not waive any of them.

I would recommend skipping Master's and go with a slightly less demanding university/group for a PhD. In a Master's degree you more often than not don't get a chance to do research. However, Master's also sets the bar higher, so simply doing any research in Master's won't substantially increase your chances of getting into PhD. You can still consider a Master's degree if you can find a research program, not a taught one.

In addition to the previous point, a high-ranked university does not increase your chances of being a successful PhD. PhD is more about your qualities and habits than the rank of your university. What a high-ranked university does, though, is imposing additional stress and competition, often putting you in a situation where you struggle to even be average.