PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlX3ZpZXdwb3J0X2RldGVjdGlvbi5qcyI+PC9zY3JpcHQ+PHNjcmlwdCBhc3luYyB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiPm15ZmlXYXRjaFdpZGdldCgnbXlmaVdpZGdldF8wJyk7PC9zY3JpcHQ+Jean Folger is a freelance writer and editor with a knack for tackling complex subjects using simple language. She’s passionate about helping people make better financial choices so they have more money and time to spend on the things that matter most. In her 15+ years as a freelance writer and editor, she’s specialized in real estate, retirement, investing, and other personal finance topics. Jean has written extensively for SFGate, Business Insider, The Motley Fool, Opendoor, Prudential, Investopedia, and more. She co-founded PowerZone Trading, which has provided award-winning software, consulting, and strategy development services to active traders and investors since 2004. Jean graduated with a bachelor's degree from Ohio University. Previously, Jean was a licensed real estate broker, an English teacher, and an adventure travel trip leader. And, she’s also the proud parent of a Team USA Olympic athlete.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.As the Federal Reserve prepares for its next meeting on September 19-20, there's one question on everyone's mind: How much longer will interest rates stay high? The Federal Reserve raised its federal funds target rate 11 times in the past 18 months in its bid to cool inflation. (The federal funds rate is the rate banks charge one another for overnight loans.) The quarter-point hike at the July meeting brought the benchmark interest rate to 5.25%-5.50% — its highest level in 22 years. As the rate increases, borrowing costs for consumers and businesses also go up.But the upward trajectory may soon level out — at least for now. The Fed is expected to pause its streak of hikes at its September 20 meeting, though the door is open for another hike this year before the campaign ends for good. (Worth noting: The chance of a rate cut this year is essentially zero.)A pause followed by one more hike would mean that interest rates on consumer financial products like loans, CDs, and savings accounts are likely at or nearing their peak. Savings account interest rates, in particular are the best they've been in years. Here's what you need to know to cash in before rates start to fall.Why are high-yield savings account interest rates so high?The Fed began aggressively raising rates in March 2022 (the first increase since 2018) to address spiraling inflation without plunging the U.S. into recession. Since then, rates have steadily climbed at the fastest pace since the 1980s. Here’s what happened with the Fed rate hikes over the past 18 months: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While the rate hikes make borrowing more expensive and often more difficult, they benefit savers. Savings account interest rates have climbed steadily along with the Fed’s rate hikes — from an average of 0.06% in early 2022 to 0.55% today (and it’s possible to earn much more than that with a high-yield savings account, even upwards of 5%).What else influences high-yield savings account interest rates?The Fed’s monetary policy decisions aren’t the only force behind interest rates. Macroeconomic conditions come into play, as does competition among financial institutions — and some banks have been less generous about passing higher rates on to savers. For example, large brick-and-mortar banks like Bank of America and Chase still pay around 0.01% APY. At the same time, many online banks offer APYs of more than 5% — about 500 times more — in high-yield savings accounts. Rates on certificates of deposit (CDs) are similarly excellent right now, with the top-yielding accounts also offering an APY of 5% or more.Will rates continue to rise in 2023?The Fed has yet to decide when it will pause its rate hikes, but Powell has been clear that inflation is not yet under control. "It is the Fed’s job to bring inflation down to our 2% goal, and we will do so," he told the audience at the symposium in Jackson Hole. "Although inflation has moved down from its peak — a welcome development — it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective." Translation: Get ready for another rate hike in September, and then we'll see from there.What should savers do?According to a Bankrate survey, only about 20% of savers (Americans with short-term savings) have savings accounts earning a competitive rate of 3% or higher — and nearly a quarter (24%) earn less than 1%. That means most savers could earn much higher rates (and much more interest) by moving their cash into a high-yield online savings account.Keep in mind that the average savings account interest rate is still just 0.55%. So, using a $10,000 deposit as an example, the account would grow to $10,055 after one year (i.e., you’d earn $55 in interest). But the same deposit in a high-yield savings account with a 5% APY would grow to $10,500 during the same period. And rates are likely to increase even further following the Fed’s most recent quarter-percentage point rate hike.Of course, savings account APYs are variable, so the rate can drop when the Fed eventually lowers interest rates. To take advantage of today’s high rates for longer, consider a CD. These time deposit accounts often pay more than high-yield savings accounts and let you lock in a rate for several months to several years (or more). The only catch is that early withdrawal penalties apply, so CDs are best for cash you won’t need immediately.The Bottom LineWhile the Fed has indicated rates will stay high through the end of 2023, some experts believe that they will soon peak. Either way, interest rates are the highest in years — and savers can cash in by putting their money in a high-yield savings account or CD.Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
Jean Folger is a freelance writer and editor with a knack for tackling complex subjects using simple language. She’s passionate about helping people make better financial choices so they have more money and time to spend on the things that matter most. In her 15+ years as a freelance writer and editor, she’s specialized in real estate, retirement, investing, and other personal finance topics. Jean has written extensively for SFGate, Business Insider, The Motley Fool, Opendoor, Prudential, Investopedia, and more. She co-founded PowerZone Trading, which has provided award-winning software, consulting, and strategy development services to active traders and investors since 2004. Jean graduated with a bachelor's degree from Ohio University. Previously, Jean was a licensed real estate broker, an English teacher, and an adventure travel trip leader. And, she’s also the proud parent of a Team USA Olympic athlete.
Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.
Mobile app users, click here for the best viewing experience.
As the Federal Reserve prepares for its next meeting on September 19-20, there's one question on everyone's mind: How much longer will interest rates stay high?
The Federal Reserve raised its 11 times in the past 18 months in its bid to cool inflation. (The federal funds rate is the rate banks charge one another for overnight loans.) The quarter-point hike at the July meeting brought the benchmark interest rate to 5.25%-5.50% — its highest level in 22 years. As the rate increases, borrowing costs for consumers and businesses also go up.
But the upward trajectory may soon level out — at least for now. The Fed is expected to pause its streak of hikes at its September 20 meeting, though the door is open for another hike this year before the campaign ends for good. (Worth noting: The chance of a rate cut this year is essentially zero.)
A pause followed by one more hike would mean that interest rates on consumer financial products like loans, CDs, and savings accounts are likely at or nearing their peak. . Here's what you need to know to cash in before rates start to fall.
Why are high-yield savings account interest rates so high?
The Fed began aggressively raising rates in March 2022 (the first increase since 2018) to address spiraling inflation without plunging the U.S. into . Since then, rates have steadily climbed at the fastest pace since the 1980s. Here’s what happened with the over the past 18 months:
While the rate hikes make borrowing more expensive and often more difficult, they benefit savers. have climbed steadily along with the Fed’s rate hikes — from an average of 0.06% in early 2022 to 0.55% today (and with a high-yield savings account, even upwards of 5%).
What else influences high-yield savings account interest rates?
The Fed’s monetary policy decisions aren’t the only force behind interest rates. Macroeconomic conditions come into play, as does competition among financial institutions — and some banks have been less generous about passing higher rates on to savers. For example, large brick-and-mortar banks like Bank of America and Chase still pay around 0.01% APY. At the same time, many online banks offer APYs of more than 5% — about 500 times more — in . Rates on (CDs) are similarly excellent right now, with the top-yielding accounts also offering an APY of 5% or more.
Will rates continue to rise in 2023?
The Fed has yet to decide when it will pause its rate hikes, but Powell has been clear that inflation is not yet under control. "It is the Fed’s job to bring inflation down to our 2% goal, and we will do so," he told the audience at the symposium in . "Although inflation has moved down from its peak — a welcome development — it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective."
Translation: Get ready for another rate hike in September, and then we'll see from there.
What should savers do?
According to a , only about 20% of savers (Americans with short-term savings) have savings accounts earning a competitive rate of 3% or higher — and nearly a quarter (24%) earn less than 1%. That means most savers could earn much higher rates (and much more interest) by moving their cash into a high-yield online savings account.
Keep in mind that the average is still just 0.55%. So, using a $10,000 deposit as an example, the account would grow to $10,055 after one year (i.e., you’d earn $55 in interest). But the same deposit in a high-yield savings account with a 5% APY during the same period. And rates are likely to increase even further following the Fed’s most recent quarter-percentage point rate hike.
Of course, savings account APYs are variable, so the rate can drop when the Fed eventually lowers interest rates. To take advantage of today’s high rates for longer, consider a CD. These time deposit accounts and let you lock in a rate for several months to several years (or more). The only catch is that apply, so CDs are best for cash you won’t need immediately.
The Bottom Line
While the Fed has indicated rates will stay high through the end of 2023, some experts believe that they will soon peak. Either way, interest rates are the highest in years — and savers can cash in by putting their money in a high-yield savings account or CD.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at lauren.williamson@hearst.com.
