Higher interest rates mean borrowing becomes more expensive. But on the flip side, your savings account can earn more. Interest rates have held steady in 2024 and are unlikely to decline substantially anytime soon, though the Federal Reserve is widely expected to make a cut to rates when it meets in September. See what that means for your savings account and learn how you can capitalize on a high interest rate.
[Read: Best Savings Accounts.]
What Savings Interest Rates Have Done in 2024
The Fed has held its benchmark interest rate steady so far in 2024. We saw four rate hikes in 2023, but the Fed hasn’t budged from the 5.25% to 5.5% rate range set in July 2023.
As the Fed maintains high interest rates, the rates for mortgages, personal loans, credit cards and savings accounts also stay high. The Federal Deposit Insurance Corporation’s current savings rate across all financial institutions is 0.45% as of July 15. That’s just slightly higher than the 0.42% national deposit rate in July 2023.
Deri Freeman, a certified financial planner with Prudential, says high interest rates make it more expensive to borrow money for large purchases such as a home or a car, but you can benefit from higher interest savings rates.
“Savings rates have been historically high for a couple of years,” Freeman says. “As these start to drop, the interest rates on your savings will also come down.”
What to Expect From Savings Rates
Throughout 2024, the Federal Reserve has held rates steady. Meeting minutes indicate the Fed plans to maintain interest rates until inflation moves sustainably toward 2%.
Many experts expected rates to drop in 2024, and we’ve seen progress toward the 2% inflation objective, but the Fed hasn’t been ready to cut rates yet.
[See: Best High-Yield Savings Accounts]
Strategies for Maximizing Savings Rates
You can earn more from your savings account when interest rates are high. It’s a good time to take advantage by finding savings accounts and certificates of deposit with the highest annual percentage yields.
To get the maximum APY, look for high-yield savings accounts offered by digital banks, says money coach and certified financial planner Ohan Kayikchyan. These companies don’t have the substantial overhead costs of traditional brick-and-mortar banks so they can offer more competitive interest rates.
However, be sure to read the fine print on savings rates. Bonus rates, also known as introductory or teaser rates, are often an incentive to open a new account but may reset after a certain period. Also, find out if there’s a balance requirement to get the advertised rate.
But before you open a new account, turn to your current bank. If you have money in a savings account you’re thinking about moving to a bank with a higher savings rate, talk to your bank. “Ask your current bank what they can do for you to keep your relationship and not move your money to a competitor,” says Kayikchyan.
Freeman also recommends checking with credit unions that have high-yield savings rates. Like online banks, credit unions often have lower overhead than larger financial institutions and may be able to offer more competitive rates.
Another option is putting money in CDs, which generally offer higher interest rates than savings accounts. CDs also allow you to lock in an interest rate, so it will stay the same even if market rates drop.
But there’s a trade-off in flexibility because a CD requires you to leave the money in the account for the full term. For example, you’ll need to leave money in your account for a year if you open a one-year CD.
One option is to build a CD ladder by staggering maturity dates. A simple CD ladder might involve opening a one-year CD every month for a year. That can help you take advantage of high savings rates now and potentially rising rates in the near future while still maintaining access to your funds as the CDs mature.
Also watch for bank account bonuses, which can pay hundreds of dollars when you open new eligible savings accounts. You’ll need to keep the account open, make a qualifying deposit and maintain a minimum balance for a specified period to earn the bonus.
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Savings Interest Rate Forecast originally appeared on usnews.com
Update 07/31/24: This story was published at an earlier date and has been updated with new information.
