Implications of Fed’s Move on Savings Accounts
Implications of Fed's Move on Savings Accounts
The Impact of the Federal Reserve on Savings Accounts
On Wednesday, the Federal Reserve raised interest rates once again, continuing its efforts to combat inflation. This latest increase of 0.25% brings the short-term federal funds rate to a target range of 5.25%-5.50%. Since March 2022, the Federal Open Market Committee (FOMC), the central bank’s rate-setting group, has been implementing rate hikes. With the 11th increase in interest rates, the likelihood of more hikes in the future remains. The FOMC statement includes the possibility of “some additional policy firming,” hinting at the potential for further rate increases in the near future.
What Does this Mean for Savings Accounts?
Naturally, the question on many people’s minds after the latest announcement is: What does this mean for savings accounts? Historically, when the Federal Reserve raises interest rates, savings account rates tend to follow suit. Banks use competitive APYs (annual percentage yields) on savings accounts to attract customers and deposits. As a result, smaller online banks generally offer higher rates compared to brick-and-mortar institutions.
Since the Federal Reserve began increasing rates last year, savings rates have been on a steady incline. In fact, some high-yield savings accounts, money market accounts, and CDs are currently offering impressive rates, with some exceeding 5%. By using our new comparison tool, powered by Bankrate, you can easily compare rates on high-yield savings accounts and CDs.
Earlier this year, Bankrate predicted that rates would peak and then level out, especially in light of bank failures and slowing inflation. However, the recent decision by the Federal Reserve to continue raising rates suggests that savings rates may still have room to increase. The next FOMC meeting in September will shed light on whether the Federal Reserve will implement additional rate hikes.
Conclusion
The Federal Reserve’s interest rate decisions have a direct impact on savings accounts. As the central bank raises rates, savings account rates tend to increase as well. Online banks often offer the most competitive rates, making it beneficial for individuals to explore their options beyond traditional brick-and-mortar institutions.
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The current economic climate, with the possibility of further rate hikes, supports the idea that savings rates may still rise. However, the next FOMC meeting in September will provide greater insight into the Federal Reserve’s plans and potential future rate increases.
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