Last week, the Fed paused rate hikes for the second time this year. Now some savings rates are higher than the federal funds rate range. Experts say this is a clear signal that savings rates are as high as they’re going to get.
Annual percentage yields for certificates of deposit and high-yield savings accounts are higher than they’ve been in over a decade, with top-yielding accounts offering more than 5% APY. And you can expect interest rates on savings and CDs to hold for the near future, said Jeff Rose, certified financial planner.
Since high savings rates are likely to stick around through the end of the year, there’s still time to earn a competitive interest rate on your savings. If you’ve been considering locking in a CD term, now may be the time to act, since experts don’t expect rates to climb much higher. But the key is to diversify your short- and long-term savings.
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This week’s savings and CD rates
Most banks followed the Fed’s path of holding CD and savings rates steady this week. Based on the banks we track at CNET, only Bask Bank raised its 18-month CD up to 4.50%. Here’s a look at the average rates for CD terms.
| CD term | 6-month | 1-year | 3-year | 5-year |
| Average rate | 4.72% | 5.22% | 4.29% | 5.19% |
Savings rates also remained unchanged this week, but are still favorable if you’re setting aside money for your emergency fund or starting a sinking fund for the holidays. The average savings APY is 4.79%, based on the banks we track at CNET. But rates will remain high for now. However, experts don’t expect rates to go much higher. Instead, they’ll slowly start to taper off when the Fed signals that it will lower rates.
What the Fed’s pause means for savings and CD rates
CD rates have been at some of the highest levels in years, Rose said. But if you’ve been waiting to see where rates will go next to lock in a CD, experts suggest the time to strike is now.
“Given that the Fed has paused hiking rates for now, I don’t expect any large changes in interest rates until at least their next meeting,” said Doug Carey, a chartered financial analyst.
While the inflation rate will impact what the Fed does next, there’s no guarantee banks will raise savings rates much higher even if the Fed decides to hike rates again. And if inflation trends downward, the Fed will continue to pause or start lowering rates. In that case, savings and CD rates will likely follow suit. The remaining FOMC meetings will send a clearer message on what to expect next, said Cody Sparks, director of retail banking at UMB Bank.
“Investors should lock in high CD interest rates while they can,” Carey said. “This is a great time to be invested in short-term bonds and CDs as interest rates are nearly 2% higher than inflation after being well below inflation for years.”
As for savings accounts, there’s still time to earn interest. With some rates as high as 5%. But since it’s a liquid account, as rates begin to fall, your interest rate on liquid accounts will also begin to fall, Sparks said.
Which savings account is best for short- and long-term savings goals?
Given the current economic climate, it’s best to diversify your funds for the long term so they outpace inflation over time, Rose said. “If you already have a savings strategy, now’s not the time to pivot, but instead review the plans you already have set,” he said.
You should always have some short-term savings in a liquid account, such as a high-yield savings account, which offers the flexibility of quick access without penalties. This way, if an emergency pops up, you can access your money without worrying about early withdrawal penalties.
But it’s best to choose a different approach for the long term.
“Don’t let short-term noise disrupt your future financial goals,” Rose said. “If you need the security of having your money tucked away for a specific time period, then it might be a good time to lock in your money with a CD.” You may choose a mix of CDs and bonds, along with more risky investments such as real estate and the stock market. “It’s all about striking a balance and not putting all your eggs in one basket,” he added.
You can also keep money for longer-term goals more flexible by building a CD ladder, so you’ll have a portion of your funds coming due sooner.
