While rising interest rates may drive aspiring homebuyers and other borrowers to put their loan applications on hold, Americans with high-yield savings accounts (HYSAs) and certificates of deposit (CDs) stand to benefit from the higher rates. In 2023, the Federal Reserve raised the Federal Funds Rate several times in a bid to tackle inflation and slow consumer spending. The Federal Funds Rate influences interest rates on consumer financial products, including mortgages, credit cards, and savings accounts. Typically, as the Federal Reserve raises or drops the federal funds rate, other interest rates increase or decrease in tandem.
This year, the Federal Reserve has provided strong indications that interest rates will remain steady for some time. So, what does 2024 have in store for savings account holders? Find out if it’s the right time to open a high-yield savings account and get more insights with our 2024 forecast below.
Rates are likely to remain high through the summer
While interest rates were increasing for most of last year, this year rates appear to be holding steady. However, since savings rates rise or decrease in lockstep with the Federal Funds Rate, the APY (annual percentage yield) for most HYSAs will decrease when the Fed eventually lowers rates. Some financial analysts have suggested that the Fed may make their first cuts of the year in June or July. This means that most consumers can benefit from high APYs through the summer. The sooner you apply for a HYSA, the longer you’ll be able to enjoy favorable rates.
Are rates likely to rise in 2024?
The Federal Funds Rate appears to be between 5.25% and 5.50%. Rates are usually raised in response to inflation. Now that inflation is showing signs of tapering off, there’s little chance of the Federal Funds Rate being raised any further this year. That said, these predictions aren’t certain—circumstances may still change and trigger a shift in interest rates.
How soon will rates dip?
In a recent Capitol Hill appearance, Federal Reserve Chairman Jerome Powell stated that policymakers are keeping inflation in mind as they hold off on reducing interest rates. An improving economy over the next few months could likely lead to lower rates later in the year. Powell also mentioned that lowering rates before inflation reached 2% may be premature. By most accounts, rates aren’t on track to dip until later in the year.
How can I benefit from high rates?
Considering rates are likely to hold steady for a while, consumers should consider opening a HYSA or increasing their contribution to their HYSA. Increase your account balance while rates are high to maximize earnings and keep withdrawals to a minimum. If your bank offers tiered interest rates, familiarize yourself with the tiers and keep your account balance aligned with the highest interest rate tier.
A HYSA may yield attractive rates, with some online banks and credit unions offering $0 costs to open and no minimum balance. With the right account, getting a HYSA could be a straightforward way to build your savings and take advantage of today’s higher interest rates.
