It’s 2023, and the Federal Reserve has just announced an increase in federal funds rates of 0.25%. This follows seven rate increases in 2022. This raise brings the target funds rate range to 4.5%-4.75%. Although this increase is less than the drastic changes in 2022 and other increases, it means that rates have risen to their highest point since 2007.
Due to the rate hikes, credit card balances and loans are now more expensive. However, if you have a certificate of deposit or a savings account, you may be able to benefit. Let’s take a look at the potential rate increases for savings accounts in 2023.
Savings account: 3% APY and higher
Some of the highest-rated savings accounts only earned a 0.50% annual percentage return in early 2022. The best savings accounts today earn more than 3 % APY. A few high-yield savings account accounts can earn as much as 4% APY.
This is a significant jump in one year. The Federal Reserve announced a smaller rate increase than the majority of 2022 rate increases. Don’t expect to see an APY that is nearly eight times as high. You may see yields slightly higher than the 2022 rate bumps, and accounts could reach the 4% mark.
Be on the lookout for high-yield savings accounts online, which offer the best rates.
However, the rates for savings accounts at a few national banks are as low as 0.01% despite multiple federal rate increases in the past year. These rates are below the national average savings rate of 0.33%, as per the Federal Deposit Insurance Corp.
A savings account earning a low rate might be worth it.
Save for the future
The Federal Reserve is increasing interest rates because it wants to combat inflation. The efforts made last year appear to be paying off. The U.S. Bureau of Labor Statistics reported that the consumer price index (which is used to measure inflation) increased 6.5% in December 2022. While this figure is still high, it is still lower than the previous year’s 6.5% increase. In June 2022, the CPI rose 9.1% year-over-year. Rate increases could be stopped if inflation falls below the Federal Reserve target range over the next few months.
This is why it’s important to start building an emergency fund in a high yield account. Although no one can foresee the future, having strong savings accounts can help you weather financial storms.
While it’s best to have at least three to six months of your expenses saved up, that is still a significant amount. You can save money over time if you don’t have enough.
Imagine you get a check twice a month, and can save $50 each paycheck. In six months, you’ll have $600 saved up. This can be very helpful in financial emergencies. You can grow your money by putting that cash in a high-rate account.
A high-yield savings account that offers a higher return makes
Your savings location can impact your balance. You could earn 6 cents a year if you kept your $600 emergency fund in an account that earned 0.01% APY, such as the one offered by large national banks. However, if the money were in a high-yield savings accounts that earns a 4.0% APY, even though you did not make additional deposits, it would grow by $24 over that same period. This is a benefit for choosing a higher savings account.
NerdWallet’s savings calculator allows you to calculate your savings and see how much it could make.
So far, the Fed has continued to raise rates into 2023. You can take advantage of this by saving your money in a high yield savings account. A high-yield savings account will give you better rates than regular savings accounts and allow you to be more prepared for any financial situation.