How the Fed’s latest rate hike will affect your bank savings

Editor’s note: This is an excerpt from a story that was originally published on March 22, 2023.

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CNN
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Banking has been the focus of many people’s attention since some unexpected bank failures and U.S. regulators’ actions to boost confidence in the financial system.

But the Fed’s decision on Wednesday raise the key interest rate for the ninth time since last March, they brought good news to savers looking for a higher return on their money.

“Savings and CD returns are the best in 15 years,” said Greg McBride, chief financial analyst at Bankrate.com.

Higher rates mean your most liquid savings — the ones set aside for unexpected expenses or short-term goals like a vacation fund or even a down payment you’ll need over the next 12 months — can finally make you some money. after years of earning. almost nothing. Unless, of course, you still keep your money in the biggest banks. They offer the lowest savings rates.

But high-yielding online savings accounts now offer rates of up to 5%, well above the national savings account average of 0.23%, according to Bankrate.

“You’re leaving a lot of money on the table if you don’t go to online banking,” McBride said.

Just make sure you choose one that is FDIC insured so you can rest easy. knowing that your deposits up to $250,000 will be protected if the bank is in trouble.

Among the highest yielding CDs are several federally insured annual CDs with rates up to 5.15%, well above the current national average of 1.62%.

So go shopping.

Given today’s still high inflation rates, which are currently works at 6% – Series I savings bonds can be attractive because they are designed to preserve the purchasing power of your money. You can still get the current 6.89% rate on I Bond if you buy before the end of April.

This rate will be valid for six months if you complete your purchase before it resets on May 1st. If inflation falls, the bond rate I will also fall.

There are some restrictions: You can only invest maximum $10,000 a year. You cannot redeem your bond in the first year. And if you cash out between the second and fifth years, you will lose interest on the previous three months.

“In other words, I Bonds is not a replacement for your savings account,” McBride said.

However, they retain the purchasing power of your $10,000 if you don’t have to touch them for at least five years. They can also be especially helpful for people planning to retire in the next 5 to 10 years, as they serve as a safe annual investment that can be used in the first few years after retirement if needed.