Maximize your savings in 2023 with the help of high-yield accounts. Learn about the Federal Reserve’s rate hike and its impact on your savings, why high-yield online accounts are a better option, and how to build an emergency fund. Make the most of your savings today with a high-yield account.
Questions Answered in this Article
What did the Federal Reserve do recently? A: The Federal Reserve raised the federal funds rate range by 0.25%, bringing it from 4.5% to 4.75%.
Q: What is the impact of this increase on loans and credit card balances? A: The increase makes loans and credit card balances more expensive.
Q: What is the current status of savings account yields? A: Some of the best savings accounts now offer 3% or higher APY, with a few even reaching 4%.
Q: How does the location of your savings impact your balance? A: The location of your savings can significantly impact your balance, for example, a savings account with a 0.01% APY would only earn 6 cents after a year, while a high-yield savings account with a 4.00% APY would grow by more than $24.
Q: What is the importance of having a high-yield savings account? A: Having a high-yield savings account can help you prepare for financial uncertainties and earn better rates compared to a regular savings account.
How the Federal Reserve’s Rate Hike Impacts Your Savings
The Federal Reserve has raised the federal funds rate range by 0.25%, bringing it to 4.5% to 4.75%, the highest since 2007. This is the eighth increase in 2022. This increase affects loans and credit card balances, making them more expensive, but could benefit savings accounts and certificates of deposit. The latest rate increase’s impact on savings accounts in 2023 is discussed.
In early 2022, top savings accounts had a yield of only 0.50% APY. Now, some of the best savings accounts offer 3% or higher APY, with a few even reaching 4%. This substantial increase over one year is unlikely to continue, but there may still be some slight increases, and more accounts may hit 4%.
High-yield online savings accounts tend to have the highest rates, so keep an eye on them. On the other hand, some major national banks have savings account rates as low as 0.01%, which lag behind the national average savings rate of 0.33% as of January 17, 2023, according to the FDIC. If your savings account has a low rate, it may be worth your time to look for a savings account that earns 3% to 4% APY.
MORE: How Low-Interest Rates and High Inflation Impact Your Savings
Why High-Yield Online Savings Accounts are the Way to Go
The Federal Reserve has been raising rates to combat inflation, and its efforts seem to be working. According to the U.S. Bureau of Labor Statistics, the consumer price index, a common measure of inflation, rose 6.5% YoY in December 2022, a lower figure than the 9.1% YoY in June 2022. If inflation stays within the Fed’s target range in the coming months, rate hikes may stop.
This highlights the importance of building an emergency fund in a high-yield account. Having a solid savings account can help you prepare for financial uncertainties. It’s recommended to have three to six months of expenses in savings, but even starting with smaller amounts is better than nothing. For example, if you get paid twice a month and can save $50 each payday, you will have over $600 saved up in six months. Placing this money in a high-yield account can help it grow.
MORE: Understanding the Impact of the Federal Funds Rate Increase on Your Finances
The Importance of Building an Emergency Fund
The location of your savings can significantly impact your balance. For instance, if you keep an emergency fund of $600 in a savings account with a 0.01% APY offered by many large national banks, you would only earn 6 cents after a year without making any further deposits. However, if you placed the same amount in a high-yield savings account with a 4.00% APY, even without additional deposits, your balance would grow by more than $24 in the same time period. That’s the difference a high-yield savings account can make.
With the Federal Reserve continuing to raise rates in 2023, take advantage by putting your money in a high-yield savings account. You’ll earn better rates compared to a regular savings account, and you’ll be better prepared for any financial challenges that may arise.
MORE: Preparing for the Unexpected: How to Build a Strong Emergency Fund
Summary
- The Federal Reserve raised the federal funds rate range by 0.25%, bringing it from 4.5% to 4.75%.
- The increase makes loans and credit card balances more expensive but could benefit savings accounts and certificates of deposit.
- Some of the best savings accounts now offer 3% or higher APY, with a few even reaching 4%.
- High-yield online savings accounts tend to have the highest rates, while some major national banks have savings account rates as low as 0.01%.
- The Federal Reserve has been raising rates to combat inflation and its efforts seem to be working, the consumer price index rose 6.5% YoY in December 2022, lower than June 2022’s 9.1%.
- Building an emergency fund in a high-yield account is important for financial preparedness.
- The location of your savings can significantly impact your balance, a high-yield savings account can help it grow.
- Putting your money in a high-yield savings account can earn better rates compared to a regular savings account.
