The Latest Fed Rate Hike May Be the Last for a While. Here's What That Means for Your Savings

Earlier this week, the Federal Reserve announced its 10th rate hike in an effort to rein in inflation.

The decision will increase the cost of borrowing, meaning everything from personal loans to credit cards will become more expensive. But there's also a chance that annual percentage yields or APYs on CDs and high-yield savings will increase, too. And even if they stay the same, they're still higher than they've been in recent years.
"Rates on money market funds and high-yield savings will remain relatively high until the Fed starts cutting interest rates," said Tom Graff, head of investments at Facet. With the Fed raising rates again, interest-earning deposit accounts may get a little better, for now.

Though we're not quite at the Fed's inflation target of 2%, experts aren't expecting savings and CD rates to change much in the coming weeks. However, high savings rates will only hang around until the Fed decides to lower the federal funds rate. "Once the Fed starts cutting, those rates will fall," said Graff. 

So where should you put your savings for now? And is a high-yield savings account still worthwhile? We'll answer these questions and cover the best CD and savings rates available. 

Average CD rates this week 

Over the past few weeks, we haven't seen big swings in CD rates. 

The average CD rates tracked by CNET increased slightly for each CD term this week, but not by much. This week, six-month CD rates increased by 0.02%, while one-year CDs increased to 4.80%, with some banks over 5%. Meanwhile, three- and five-year CD rates remain lower than shorter terms. Here's a closer look at how much rates have changed in a week. 

Despite rates only increasing slightly this week, most banks are well above the average rates tracked by the Federal Deposit Insurance Corporation. The FDIC averages include rates from traditional banks, which tend to have lower CD rates. While banks with physical branches can be convenient, we recommend considering an FDIC-insured online bank to get a better annual percentage yield or APY on your savings -- as long as you're comfortable managing your money online or via an app. 

Rates as of May 1, 2023. 

The best savings rates this week 

This week, the average savings rate as tracked by CNET is 4.38%. Most banks have APYs around 4%, but many are well over that mark, with some inching closer to 5%. Some banks are still raising rates -- including Bask Bank and Bread Savings. Others are keeping rates the same for now. 

Rates as of May 1, 2023. 

Savings rates are reaching a peak 

Over the past several weeks, only a few banks have increased rates for CDs and savings accounts -- but not by much. After this week's Fed rate hike, experts believe it will be the last rate hike for a while, since inflation is cooling. As a result, we may see small jumps in savings and CD rates for banks to remain competitive, but most rates will remain the same. 

On the CD side, whether rates go up or remain the same, experts say now's the time to lock in a long-term CD before rates drop. As for high-yield savings accounts, we shouldn't expect rates to increase much, either. 

"It's difficult to predict exactly how much higher high-yield savings rates will go by summer," said Michael Ryan, a retired financial planner and founder of Michael Ryan Money. "It depends on a number of factors like inflation, economic growth and interest rate policy. There has been a trend of increasing rates, so it's likely they will continue to rise at least somewhat."

There's a chance that high-yield savings may increase by another 0.25% to 0.50% by this summer, said Jordan Hucht, a certified financial planner and partner at Vision Wealth Partners. "Keep in mind that savings rates can go the other way, too. And if the economy has a downturn, it's likely that rates would also come down." 

What happens when savings rates plateau?

As inflation cools, experts are still predicting a recession in 2023 or 2024. While a recession can be scary because it's typically marked by a period of economic decline, increased layoffs and a higher unemployment rate, it's also a recurring part of the economy's ebb and flow. And the best way to get ahead of a recession is to prepare for the unexpected.

As rates begin to plateau and slightly dip for some banks, if you have savings, it's time to start thinking about where to move your money next. Right now, there's still time to take advantage of high APYs on interest-earning deposit accounts, like savings, CDs and money market accounts. 

Keep in mind that high-yield savings and money market accounts have variable rates. But just because savings rates won't jump to record highs like last year, it doesn't mean you need to move your money. As rates remain stagnant (or slightly dip for some banks), you may not earn the best return, but you want to keep emergency and short-term funds accessible. "Savings accounts are great tools for holding cash for emergencies and shorter-term needs, but they are not great tools for achieving real returns," said Hucht. 

Where to park your savings

 Even though rate hikes may be ending, it's still important to save -- now more than ever. 

The first priority should be saving money you'll need soon in a high-yield savings account. "Emergency savings should be kept in an FDIC-insured bank account that is liquid and can be withdrawn penalty-free at any time," said Hucht. 

If you already have a fully stocked emergency fund, you can take advantage of the high savings rates that are still around by diversifying your wallet. For instance, you may keep money in a high-yield savings account or money market account to keep some funds flexible. You can also add a short-term CD or Treasury bond to lock away money in exchange for a slightly higher interest rate. 

"They are all fairly liquid options just in case you end up needing access to the money," said Tatiana Tsoir, a certified public accountant and author of Dream Bold, Start Smart. Just be aware of any minimum balance requirements and withdrawal penalties if you need to pull out funds. 

Equities tend to provide bigger returns if you have a longer horizon for the funds you won't need in 10 years. "For most investors, low-cost stock index funds are a simple, effective way to reap the benefits of market growth over time," said Hucht. You may also consider investing in the stock market, depending on your goals, added Ryan. 

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