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Maximizing Your Savings: Interest Rates in 2023 and Beyond

How Did Interest Rates Change in 2023?

In 2023, savings interest rates saw significant increases due to the Federal Reserve’s efforts to combat high inflation. Between March 2022 and July 2023, the Federal Open Market Committee (FOMC) raised the federal funds rate 11 times. This aggressive stance resulted in higher interest rates on credit cards and other short-term debt, but also caused interest rates on savings products to spike.

Before these rate hikes, high-yield savings accounts offered annual percentage yields (APYs) below 1%. By the start of 2023, they had reached 4%, and by the end of the year, they surpassed 5%. Other savings products, such as money market accounts and certificates of deposit (CDs), also experienced sharp increases during this period.

Savings Interest Rates vs. Inflation

Savings account interest rates usually aren’t high enough to keep up with inflation. However, in 2023, high-yield savings interest rates ended the year ahead of the inflation rate. While you can still earn upwards of 5% in a high-yield savings account, the headline inflation rate for November slowed to 3.1%, according to the Bureau of Labor Statistics.

What Experts Predict for 2024

Savings interest rates are directly tied to the federal funds rate, which closed out 2023 at a range of 5.25% to 5.50%. The FOMC approved a plan in December to cut interest rates three times in 2024, with an expected rate cut of 0.25% each time. Further rate cuts in 2025 and 2026 would bring the federal funds rate even lower.

Experts expect the inflation rate to decline further in 2024 to 2.5%, still higher than the Fed’s 2% target rate. Staying up to date on monthly inflation reports and the Fed’s meetings throughout the year can give you more insight into what’s going on. But if the agency starts reducing its rates, expect your savings rates to follow suit.

How to Make the Most of Savings Interest Rates

Savings interest rates aren’t expected to fall drastically, but as inflation continues to slow, look for opportunities to take advantage of high savings rates while you can. Here are some steps you can take to maximize your interest earnings:

Open a High-Yield Savings Account

Not all savings accounts are created equal. While some banks are offering APYs of 5% or more, the national average savings account interest rate is just 0.46%, according to the Federal Deposit Insurance Corp. (FDIC). If you’re earning a subpar rate with your current bank, check to see if it also offers a high-yield savings account.

Shop Around for a Better APY

If your bank doesn’t offer a high-yield savings account, or its interest rate isn’t competitive, research and compare rates from other financial institutions to see if you can earn more elsewhere. Online banks tend to offer the best APYs on high-yield savings accounts, but you may also find great options with credit unions and traditional banks.

Lock In a Fixed Rate With a CD

While high-yield savings accounts typically offer higher interest rates than traditional savings accounts, the rates are variable. This means that once the Fed decreases interest rates, your rate will be quick on its heels. CDs, on the other hand, offer fixed rates for the length of their term, which can range from one month to several years. Consider CDs if you have money you don’t need access to for the duration of the term.

The Bottom Line

With the budgets of many Americans still recovering from inflation that reached a 40-year high last year, those who have been able to save have found a silver lining in the form of high interest rates on savings accounts. While savings account interest rates are the highest they’ve been in years, experts forecast that they’ll likely start to decline in 2024. Although it’s unclear how much they’ll drop, there’s still time to enjoy the benefits of high interest rates while you can.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team is ready to assist you with the best mortgage solutions tailored to your needs.

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