https://www.sfgate.com/persona...https://www.sfgate.com/persona...Lauren Williamson is the Financial and Home Services Editor for the Hearst E-Commerce team. She previously served as Senior Editor at Chicago magazine, where she led coverage of real estate and business, and before that reported on regulatory law and financial reform for a magazine geared toward in-house attorneys. You can reach her at lauren.williamson@hearst.com.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.Analysts are split on whether the Federal Reserve will still raise interest rates at its March 22 meeting after the dramatic collapse of Silicon Valley Bank last week plunged the financial sector into chaos. While experts had been betting on a 0.5% rate hike, now a more modest 0.25% hike — or even no hike at all — seems more likely.Just days before the bank’s failure, Federal Reserve Chair Jerome Powell hinted that a more aggressive Fed rate hike was almost certain. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in testimony to the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”An aggressive series of rate hikes last year brought the benchmark borrowing rates to their highest levels since 2007. Most recently, the Fed raised interest rates by 0.25% at its February 1 meeting, and by 0.25% at its March 22 meeting. That increase brought the benchmark between 4.75% to 5.00%. In December, the Fed raised rates by half a percentage point after four consecutive hikes of 0.75%.Some experts believe, however, that the Fed will now take a more moderate approach to avoid creating further economic turmoil. The Fed’s goal is to bring inflation down to around 2% while preserving “maximum employment,” a tricky dance as rising interest rates could be one factor that tips the country into a recession in 2023.One silver lining amid all the recent financial turmoil: The Fed’s historic streak of rate hikes over the past year has also pushed interest rates on high-yield savings accounts and certificates of deposit (CDs) to their highest levels in 15 years. Returns on the best yielding accounts are generally above 4%, while one account has even topped 5%. So one simple way to combat rising inflation: Shop around for a better interest rate on your savings account. Here’s what to know.Current savings account interest ratesPHNwYW4+PC9zcGFuPjxzY3JpcHQgYXN5bmM9InRydWUiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlLmpzIj48L3NjcmlwdD48ZGl2IGNsYXNzPSJteUZpbmFuY2Utd2lkZ2V0IiBkYXRhLWFkLWlkPSJjYjdiMTc1Yy03YjU2LTRmY2QtODVjZS1kYjcxNjJmZDhmM2UiIGRhdGEtY2FtcGFpZ249ImhlYXJzdHR2LXNhdmluZ3MtbXVsdGkiIGRhdGEtc3ViLWlkPSJodHRwOi8vd3d3LmtjcmEuY29tL2FydGljbGUvbmV4dC1mZWQtcmF0ZS1oaWtlLXNhdmluZ3MtYWNjb3VudC1pbnRlcmVzdC1yYXRlcy80MzE2MjYzNSI+PC9kaXY+The relationship between Fed rate hikes, inflation, and your savingsEven though the Fed doesn’t control savings account interest rates, its actions influence them, and the rates typically rise in tandem. As of March 22, the national average interest rate for savings accounts is 0.23%, consistent with recent trends, according to Bankrate’s weekly survey. The connection between Federal interest rates and savings account interest rates hasn’t been as strong since the 2008 financial crisis. Interest on savings accounts has risen more slowly this past year than conventional wisdom would suggest. But the average rate has still more than tripled since the Fed started its push in March 2022.Some economists predict that banks will soon start raising savings account interest rates more rapidly, as the gap between the Fed’s rate and interest rates on savings accounts grows. The bigger the gap, the more pressure banks feel to catch up. And once some banks start raising rates, it leads to a ripple effect among others competing for your deposits.People are finding the best returns at online banks, versus traditional brick-and-mortar banks — in some cases, interest rates are 1,600% higher. Yet most high-yield savings accounts offer the same flexibility as traditional savings accounts, such as the ability to easily transfer money to a checking account. Certificates of deposit, or CDs, are also a good option for higher interest rates, especially if you plan to leave your money in place for a while. Some CD interest rates have topped 5% recently for the first time since the mid-2000s.PHNwYW4+PC9zcGFuPjxzY3JpcHQgYXN5bmM9InRydWUiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlLmpzIj48L3NjcmlwdD48ZGl2IGNsYXNzPSJteUZpbmFuY2Utd2lkZ2V0IiBkYXRhLWFkLWlkPSIwN2ZiOTg4My0yNzgwLTQ3MjItYmIzZi1mMjBhZWEwYWM1ZWEiIGRhdGEtY2FtcGFpZ249ImhlYXJzdHR2LWNkLW11bHRpIiBkYXRhLXN1Yi1pZD0iaHR0cDovL3d3dy5rY3JhLmNvbS9hcnRpY2xlL25leHQtZmVkLXJhdGUtaGlrZS1zYXZpbmdzLWFjY291bnQtaW50ZXJlc3QtcmF0ZXMvNDMxNjI2MzUiPjwvZGl2Pg==How a high-yield savings account worksHigh-yield savings accounts function much like traditional savings accounts. Money that you deposit earns interest, also called the annual percentage yield, or APY. That interest can also be compounded, which means that over time, you earn interest on the interest that’s been added to your account. (Worth noting: Interest rates on savings accounts aren’t fixed, so ones that are up now could eventually go down.)The primary difference between a high-yield savings account and a traditional account is the amount of interest you can earn. Online banks, which tend to offer the best interest rates, don’t have the same overhead as brick-and-mortar banks. They pass that savings on to customers in the form of higher interest rates. As long as the bank is FDIC insured, it doesn’t matter if it’s a traditional bank or online bank; your money is protected up to $250,000 per depositor, per account type. (Use the FDIC BankFind tool to check.) Just like traditional savings accounts, some high-yield savings accounts require a minimum balance in order to earn interest or avoid fees. You may also find a limit to the number of withdrawals you can make each month. However, you can add as much money as you want, whenever you want.Interest rates are one of the best tools banks have for gaining new customers. If the Fed continues raising the interest rate at the central bank, as expected, it will likely make that competition even more intense. So while it might sound intimidating or time-consuming to research interest rates and switch banks, the payoff for your savings could be big.Are more Fed rate hikes coming in 2023?Inflation indicators haven’t provided a clear path forward for the Fed in recent weeks. Prices of goods and services rose 6% in February over the previous year, a small decline from the 6.4% increase in January, according to the Consumer Price Index report released March 14. The Fed’s goal is to tug inflation down to around 2%. Employment, meanwhile, remains strong, with 311,000 new jobs created in February, according to the jobs report released March 10. Unemployment, however, ticked up slightly to 3.6%, higher than the expected 3.4%, showing that the labor market might be starting to soften. That would tell the Fed that its fight against inflation is starting to work — but the picture is more complicated since job growth is still solid.When Powell spoke to Congress on March 7, he struck a hawkish tone. “We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” he said.That was before the surprise collapse of Silicon Valley Bank just three days later, which triggered fears that the U.S. could be headed toward another banking crisis similar to 2008. While those worries moderated slightly in the following days, the bank’s failure could pressure the Fed to ease up on rate hikes while the financial sector stabilizes.As of March 15, investors were split on what the Fed will do, with 52.4% betting it will once again raise interest rates by a quarter percentage point, as it did in February. On the other hand, 47.6% believe the Fed will keep the federal funds rate right where it is. That’s in line with predictions from economists at Goldman Sachs, Moody’s and JP Morgan Chase, who believe the Fed will hold the federal funds rate steady to avoid injecting more turbulence into the economy.The FOMC is scheduled to meet March 21 and 22 to discuss current economic conditions and decide on the appropriate monetary policy for the moment. It will announce whether it’s raising interest rates, and if so, by how much, on March 22 after the meeting concludes.After that, the FOMC isn’t scheduled to meet again until May 2-3. With all the uncertainty in the economy right now, it’s anybody’s guess where the Fed will go from here. So what’s a consumer to do? Watch mortgage rates closely if you’re in the market for a house and consider taking advantage of higher interest rates on savings accounts and CDs while you can. PHNwYW4+PC9zcGFuPjxzY3JpcHQgYXN5bmM9InRydWUiIHNyYz0iaHR0cHM6Ly9zdGF0aWMubXlmaW5hbmNlLmNvbS93aWRnZXQvbXlGaW5hbmNlLmpzIj48L3NjcmlwdD48ZGl2IGNsYXNzPSJteUZpbmFuY2Utd2lkZ2V0IiBkYXRhLWFkLWlkPSJjYjdiMTc1Yy03YjU2LTRmY2QtODVjZS1kYjcxNjJmZDhmM2UiIGRhdGEtY2FtcGFpZ249ImhlYXJzdHR2LXNhdmluZ3MtbXVsdGkiIGRhdGEtc3ViLWlkPSJodHRwOi8vd3d3LmtjcmEuY29tL2FydGljbGUvbmV4dC1mZWQtcmF0ZS1oaWtlLXNhdmluZ3MtYWNjb3VudC1pbnRlcmVzdC1yYXRlcy80MzE2MjYzNSI+PC9kaXY+Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was originally published on SFGate.com and reviewed by Jill Slattery, who serves as VP of Content for the Hearst E-Commerce team. Email her at jill.slattery@hearst.com.
https://www.sfgate.com/persona...https://www.sfgate.com/persona...Lauren Williamson is the Financial and Home Services Editor for the Hearst E-Commerce team. She previously served as Senior Editor at Chicago magazine, where she led coverage of real estate and business, and before that reported on regulatory law and financial reform for a magazine geared toward in-house attorneys. You can reach her at lauren.williamson@hearst.com.
Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.
Mobile app users, click here for the best viewing experience.
Analysts are split on whether the Federal Reserve will still raise interest rates at its March 22 meeting after the dramatic collapse of Silicon Valley Bank last week plunged the financial sector into chaos. While experts had been betting on a 0.5% rate hike, now a more modest 0.25% hike — or even no hike at all — seems more likely.
Just days before the bank’s failure, Federal Reserve Chair Jerome Powell hinted that a more aggressive Fed rate hike was almost certain. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in testimony to the Senate Banking Committee. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
An aggressive series of rate hikes last year brought the benchmark borrowing rates to their highest levels since 2007. Most recently, the Fed raised interest rates by 0.25% at its February 1 meeting, and by 0.25% at its March 22 meeting. That increase brought the benchmark between 4.75% to 5.00%. In December, the Fed raised rates by half a percentage point after four consecutive hikes of 0.75%.
Some experts believe, however, that the Fed will now take a more moderate approach to avoid creating further economic turmoil. The Fed’s goal is to bring inflation down to around 2% while preserving “maximum employment,” a tricky dance as rising interest rates could be one factor that tips the country into a recession in 2023.
One silver lining amid all the recent financial turmoil: The Fed’s historic streak of rate hikes over the past year has also pushed interest rates on high-yield savings accounts and certificates of deposit (CDs) to their highest levels in 15 years. Returns on the best yielding accounts are generally above 4%, while one account has even topped 5%. So one simple way to combat rising inflation: Shop around for a better interest rate on your savings account. Here’s what to know.
Current savings account interest rates
The relationship between Fed rate hikes, inflation, and your savings
Even though the Fed doesn’t control savings account interest rates, its actions influence them, and the rates typically rise in tandem. As of March 22, the national average interest rate for savings accounts is 0.23%, consistent with recent trends, according to Bankrate’s weekly survey.
The connection between Federal interest rates and savings account interest rates hasn’t been as strong since the 2008 financial crisis. Interest on savings accounts has risen more slowly this past year than conventional wisdom would suggest. But the average rate has still more than tripled since the Fed started its push in March 2022.
Some economists predict that banks will soon start raising savings account interest rates more rapidly, as the gap between the Fed’s rate and interest rates on savings accounts grows. The bigger the gap, the more pressure banks feel to catch up. And once some banks start raising rates, it leads to a ripple effect among others competing for your deposits.
People are finding the best returns at online banks, versus traditional brick-and-mortar banks — in some cases, interest rates are 1,600% higher. Yet most high-yield savings accounts offer the same flexibility as traditional savings accounts, such as the ability to easily transfer money to a checking account. Certificates of deposit, or CDs, are also a good option for higher interest rates, especially if you plan to leave your money in place for a while. Some CD interest rates have topped 5% recently for the first time since the mid-2000s.
How a high-yield savings account works
High-yield savings accounts function much like traditional savings accounts. Money that you deposit earns interest, also called the annual percentage yield, or APY. That interest can also be compounded, which means that over time, you earn interest on the interest that’s been added to your account. (Worth noting: Interest rates on savings accounts aren’t fixed, so ones that are up now could eventually go down.)
The primary difference between a high-yield savings account and a traditional account is the amount of interest you can earn. Online banks, which tend to offer the best interest rates, don’t have the same overhead as brick-and-mortar banks. They pass that savings on to customers in the form of higher interest rates. As long as the bank is FDIC insured, it doesn’t matter if it’s a traditional bank or online bank; your money is protected up to $250,000 per depositor, per account type. (Use the FDIC BankFind tool to check.)
Just like traditional savings accounts, some high-yield savings accounts require a minimum balance in order to earn interest or avoid fees. You may also find a limit to the number of withdrawals you can make each month. However, you can add as much money as you want, whenever you want.
Interest rates are one of the best tools banks have for gaining new customers. If the Fed continues raising the interest rate at the central bank, as expected, it will likely make that competition even more intense. So while it might sound intimidating or time-consuming to research interest rates and switch banks, the payoff for your savings could be big.
Are more Fed rate hikes coming in 2023?
Inflation indicators haven’t provided a clear path forward for the Fed in recent weeks. Prices of goods and services rose 6% in February over the previous year, a small decline from the 6.4% increase in January, according to the Consumer Price Index report released March 14. The Fed’s goal is to tug inflation down to around 2%.
Employment, meanwhile, remains strong, with 311,000 new jobs created in February, according to the jobs report released March 10. Unemployment, however, ticked up slightly to 3.6%, higher than the expected 3.4%, showing that the labor market might be starting to soften. That would tell the Fed that its fight against inflation is starting to work — but the picture is more complicated since job growth is still solid.
When Powell spoke to Congress on March 7, he struck a hawkish tone. “We continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” he said.
That was before the surprise collapse of Silicon Valley Bank just three days later, which triggered fears that the U.S. could be headed toward another banking crisis similar to 2008. While those worries moderated slightly in the following days, the bank’s failure could pressure the Fed to ease up on rate hikes while the financial sector stabilizes.
As of March 15, investors were split on what the Fed will do, with 52.4% betting it will once again raise interest rates by a quarter percentage point, as it did in February. On the other hand, 47.6% believe the Fed will keep the federal funds rate right where it is. That’s in line with predictions from economists at Goldman Sachs, Moody’s and JP Morgan Chase, who believe the Fed will hold the federal funds rate steady to avoid injecting more turbulence into the economy.
The FOMC is scheduled to meet March 21 and 22 to discuss current economic conditions and decide on the appropriate monetary policy for the moment. It will announce whether it’s raising interest rates, and if so, by how much, on March 22 after the meeting concludes.
After that, the FOMC isn’t scheduled to meet again until May 2-3. With all the uncertainty in the economy right now, it’s anybody’s guess where the Fed will go from here. So what’s a consumer to do? Watch mortgage rates closely if you’re in the market for a house and consider taking advantage of higher interest rates on savings accounts and CDs while you can.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on SFGate.com and reviewed by Jill Slattery, who serves as VP of Content for the Hearst E-Commerce team. Email her at jill.slattery@hearst.com.
