When the Federal Reserve raises interest rates, it affects borrowers, lenders and investors – usually negatively. But what about depositors?
If you are among the millions of Americans who rely on savings emergency funds, retirement money or other financial goals, you are one of the lucky ones who can really benefit from higher rates. In this article, we’ll explore why savings rates may rise after the latest Fed rate hike and how high yield accounts can help you benefit from this growth.
Explore high yield rates now to find out how much more you could earn.
Will high-yield savings account rates rise after the Fed raises rates?
In short: yes. Savings account rates are based on the federal funds rate, so when that rate rises, so do savings account rates. That means savings accounts, CDs and other deposit products earn more.
A rate hike can also earn you higher interest rates because a higher federal funds rate makes it more expensive to borrow from banks and other financial institutions. One way to maintain profitability is to attract more deposits from consumers. As banks compete for customers, some offer higher rates than others. Pa to shopyou can find accounts with the highest rates and maximize your harvests.
“Interest rates on savings accounts vary quite a bit between banks,” says Tim Melio, CFP, MBA, principal and financial planner at Embolden Financial Planning LLC. “This is a great time to compare institutions and rates offered.”
Compare savings rates today to get the most bang for your buck.
Advantages of high yield savings accounts
While all types of savings accounts will benefit from rising rates, high yield accounts especially flourish. That’s why.
They earn up to 15 times more interest
High-yield savings accounts, as you might expect, offer higher returns than regular savings accounts. But just how much higher might surprise you.
Currently, average interest rates for checking accounts are 0.39%. Data from the FDIC. In contrast, rates for high-yield savings accounts range from 3.75% to 4.75%. That’s about 10 times higher. In recent months, the difference reached 15%.
“In today’s interest rate environment, high-yield savings accounts make a lot of sense for those who otherwise have money sitting idle in low/no-interest accounts,” says Jim Yutsler, CFP, ChFC, CMA, wealth advisor at Hengehold Capital Management. , Ltd. “Many high-yield savings accounts pay… much more than the average checking or regular savings account. That difference in rates can equate to hundreds, if not thousands, of dollars in increased interest income each year, depending on how much money you can keep in it.”
They offer better conditions
Many high-yield savings accounts offer internet banks. These banks have less overhead than traditional conventional banks, which means their costs are lower and they can afford to provide better terms and conditions to their customers. For example, many online banks offer low or no maintenance fees and minimum account balances.
They are safe
Compared to more volatile financial products such as stocks, high-yield savings accounts a safe place to keep your money. They are protected by FDIC insurance for up to $250,000 per bank, per account (or NCUA insurance for the same amount for credit unions). So even if your bank fails, the government protects your money up to that amount.
Also, unlike products like stocks, you won’t lose your initial savings account deposit if market conditions change. You may not earn as much if interest rates go down, but it won’t affect your original balance.
Ready for a high-yield savings account? Start here!
High yield accounts are some of the easiest ways to increase your savings, and the Fed’s latest rate hike makes them worth even more. This is another reason switch to a high yield account today.
“Now that the stakes have increased, there’s more value in this move,” says Jim White, CFP, EA, founder of Great Oak Wealth Management. “If you’re currently earning 0.5%, 1% or even 1.25% on your current savings account versus 4%+ on high-yield savings, the difference over time will be significant.”