At its meeting today, the Federal Reserve raised interest rates three-quarters of a percentage point; this is the fourth time this year they have hiked rates. What’s more, the Fed said that “ongoing increases” in interest rates “will be appropriate.”
While for borrowers this rate hike isn’t good news, if you’re a saver, you have, and will continue to, benefit from higher rates on your savings accounts and CDs, pros say. Indeed, it’s already happening (see the best savings rates you can get here).
“We’ve seen interest rates on savings and CDs increase quite a bit over the course of 2022 as the Fed has initiated rate hikes,” says Chanelle Bessette, banking specialist at NerdWallet. What’s more, she anticipates that banks will respond to this rate hike by increasing their interest rates even more over the next month or two after the late-July hike.
For his part, Greg McBride, chief financial analyst at Bankrate, says another rate hike will sustain the improvement in returns for savings accounts and CDs that savers are already seeing (see the best savings rates you can get here), particularly at online banks, smaller community banks and credit unions. “The outlook for additional rate hikes is a promising one for savers, especially at the point where we start to see a retreat in inflation,” says McBride.
As for how quickly we’ll see an uptick in rates, McBride says: “With the cadence of Fed interest rate hikes every 6 to 7 weeks, there is a continual trend toward higher yields on savings and CDs. Savings accounts in particular may see a bit of a pop following the Fed meeting, but the upward trend will be ongoing and not one point in time,” says McBride.
But inflation is still so high, so should I be saving at all?
Of course, you may be wondering why you should bother saving at all with inflation as high as it is (the inflation rate still remains at a roughly 40-year high). But pros say that even in this environment, most Americans should have somewhere between 3-12 months of essential expenses in their emergency fund, which should be in an account that is safe and accessible. (Though, to be fair, there is a such thing as having “too much” in savings, which we explore in this MarketWatch Picks story.)
To make sure you’re taking advantage of the best rates possible, Bessette says, “consumers should keep an eye on interest rates and comparison shop to see if they can earn more on their cash by moving their money to a new account.”
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