The Federal Reserve has raised the federal funds rate several times in 2022 and additional bumps are likely to increase. These changes are there to wrestle inflation down to manageable levels but will have huge effects in other areas of the economy — with mortgage rates and credit card interest rates heading up and the stock market moving in another direction.
The good news though, is that saving account interest rates also rise when the Fed raises rates, which means more money in their pockets. If rates rise, that means more people will send more money to their savings accounts and switch banks if they can find a good rate. You might be ready to make a move too.
Here are some of the best moves to make:
1. Be patient
The top interest rates in savings accounts are better than January's rates, but not the same margin found in mortgage rate increases. Why? One commonly cited reason is that banks are already flushed with more than $18 trillion in deposits, nearly 30% more than in March 2020. Because higher rates would likely push more deposits, there isn't a strong incentive for banks to raise rates quickly. Even if the pace is slow, expect interest rates on most savings accounts to continue to climb as interest rates overall rise.
2. Understand your options
There are many different types of savings accounts. High-yield savings accounts usually have better interest rates than traditional savings accounts. You could also see good rates on money market accounts or if you buy a certificate of deposit or CD.
Note: If you need to access your funds from time to time or unexpectedly, this may not be a good fit.
3. Do your research
Check out all the rates offered in your area and online. Before you open a new account, find out the details beyond the rates, such as monthly fees, high account minimums, or fine prints that reveal a too-good-to-be-true signup bonus. And it never hurts to compare any new rate to your current one either.
4. Plan for your cash needs
Online-only banks often have good interest rates — but depositing and withdrawing cash can be difficult, so if you deposit or withdraw cash often, the higher rate may not be worth it. If it makes sense to switch, then make sure you have a plan.
One option is to make cash deposits in another checking or savings account at a bank that has in-person services, then transfer the cash to the higher interest savings account. For withdrawals, you can transfer money back to the account with in-person services, or use an ATM. Make sure you won't be charged fees by your bank or by an ATM; fees from a single transaction could wipe out the equivalent of months of interest.
5. Get rid of other debt
Having your money make even more money just by sitting in an account is an appealing idea. BUT reducing debt can have a much larger impact on your overall finances than finding a savings account with a higher interest rate. Before you research interest rates, first make a plan to reduce credit card debt or repay/refinance student loans. (Insert shout out: Thanks Joe Biden!)
