Top Savings Rates ‘Soar’ Past 4.00%

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Savings rates have continued to rise nationwide even as the Federal Reserve has signaled it may not continue to raise the Fed Funds rate as quickly. 

The FDIC reports that the average savings interest rate nationwide is 0.24% APY (annual percentage yield), which is up 4x from a year ago (when it was just 0.06%).  

However, the best savings account rates and money market account rates are all at 4.00% or higher.

Savings account rates have been rising throughout 2022 spurred by the Federal Reserve’s campaign of raising interest rates to tame inflation.

Banks Are Fighting For Consumer Deposits

According to a recent Bloomberg report, banks are facing stiffer competition for funds. As savings rates rise, consumers are realizing that they can earn a lot more interest safely by moving to higher yielding options. This has put banks in a position where they are having to raise rates to keep up.

In the last week, several banks and credit unions have pushed the interest rates on their savings accounts to 4.00% annual percentage yield (APY) or higher. And these are liquid accounts. Rates on certificates of deposits (CDs) are even higher.

You can currently find the following:

Then you have bank CD rates, which have also been trending higher. The best 12-month CD rates are 4.50% APY or higher. 

According to data from Fidelity, 12-month to 18-month maturities appear to be the yield inflection point right now on new issue CDs.

CD Yield Curve on December 8, 2022

CD Yields as of December 8, 2022

Higher Rates To Be Expected

The Fed has signaled that it intends to keep raising interest rates until inflation subsides, even if that means smaller rate hikes going forward. The Fed Funds Rate is currently 4.00%, and could go higher soon.

The Fed Funds Rate is the interest rate that banks can borrow from the Federal reserve at. As such, it’s loosely linked to what savers can earn on savings and CDs. If a bank can gain a customer and deposits at the same rate or even slightly higher than the Fed Funds Rate, it could be a win-win for the bank. 

According to financial expert Jim Wang of Best Wallet Hacks, “With the Federal Reserve set to continue to increase rates to combat inflation, I expect savings interest rates to continue to soar for the next few months along with the target fed rate. Consumers are finally getting a good reason to save their money!”

Good Options For Savers Right Now

Given that rates may continue to rise, where should savers be looking to park their cash?

Given that interest rates will continue to rise, you should be wary to “lock-up” your money. As such, savings accounts and money market accounts will continue to be the best choices for most savers.

With the rates on savings account at 4.00% APY, it’s a good deal versus alternatives like a certificate of deposit where you might earn 0.50% more, but are locked in for 12 months. In the next 30-45 days, rates may rise to 4.50% or higher, and now your attractive CD may not seem so great.

Along with the attractive savings rates, more banks are starting to offer promotional incentives to attract customers. This list of bank bonus offers highlights offers up to $500 for opening a new account.

When you combine a bonus offer with a high interest rate, it can be a great deal.

Final Thoughts

The important thing to remember is where you bank matters. Using a savings account effectively is the best way to earn passive income on your money. If you don’t switch banks or keep up with higher interest rates, you’re leaving money on the table.

Joseph Hogue, CFA, reminds savers that “deposit rates languished last year at just 0.06% APY. However, now they’ve been jumping and consumers should take notice”.

Switching $10,000 from a bank that pays 0.24% APY to a bank that pays 4.00% APY means that you will earn an extra $376 per year. That’s a big deal considering the average American feels like they cannot afford a $400 emergency expense. 

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