Should you open a high-yield savings account before the Fed's March meeting?
High-yield savings accounts typically offer higher rates than the annual percentage yields (APYs) offered on traditional savings accounts. And, the interest rates paid on both high-yield savings accounts and regular savings accounts are variable — meaning that they can change depending on where the Federal Reserve's benchmark interest rate lands.
Right now, the federal funds rate is paused at a 23-year high, and, in turn, high-yield savings accounts are offering impressive rates. But the Federal Reserve will meet later this month to make the monetary policy changes it deems necessary — which includes potential changes to the federal funds rate.
So, given that there could be changes on the horizon, should you open a high-yield savings account before the Fed's March meeting?
Compare today's leading high-yield savings account interest rates.
Should you open a high-yield savings account before the Fed's March meeting?
There are a few reasons that opening a high-yield savings account now rather than waiting may be the better option. These include:
Interest rates are high at the moment
Regardless of what the Federal Reserve does later this month, the current federal funds rate is paused at a 23-year high right now. In turn, interest rates on high-yield savings accounts are also high — so opening an account now lets you start earning interest at today's high APYs.
For example, some of the best high-yield savings accounts have APYs that range from 4.35% to 5.25%. But what does that mean in terms of interest returns?
Let's say you have $15,000 in an emergency fund. If the interest rate on your account was 4.35% for a full year, you would earn a return of $652.50 — for a total of $15,652.50 after one year. If you were to earn an APY of 5.25%, you would earn $787.50 after one year — for a total of $15,787.50.
That said, it's important to keep in mind that high-yield savings rates are variable, so they can change based on the current rate environment. In turn, your interest rate could vary over time — potentially impacting your earnings.
Take advantage of today's rate environment with a high-yield savings account now.
A rate decrease is unlikely in March
If there's a reduction to the Fed's benchmark interest rate, it would likely be followed by drops to high-yield savings account rates. However, it appears unlikely that the Fed will make changes to the benchmark rate at its March meeting.
"The standard inflation rate target is at (or around) 2%," says Christian Santaniello, SVP and head of commercial deposits and treasury management at Axos Bank. "If inflation begins to increase above that benchmark, or decrease below that benchmark, the Fed may take action with interest rates."
"If inflation is too low, the Federal Reserve will generally decrease interest rates," Santaniello says.
But at 3.1% in January, the inflation rate was still well above the Fed's 2% goal. While the February inflation report has not yet been released, it seems unlikely that the inflation rate will fall from 3.1% to the 2% target rate in a single month. So, it seems likely the Fed will leave interest rates unchanged.
And, if you open an account now, you can start earning at today's high rates — and continue to do so until a Fed rate drop occurs.
High-yield savings accounts are accessible
Another big benefit of high-yield savings accounts is that your money is accessible in this type of account. In general, you can withdraw money from a high-yield savings account up to six times per month without extra fees.
But costs for consumer goods, housing and other expenses are growing and emergencies happen. So, you may need to tap into your savings from time to time, and a high-yield savings account allows you to earn interest while letting you retain access to your emergency savings.
Tap into the benefits of a high-yield savings account today.
The bottom line
Chances are that you can benefit from opening a high-yield savings account before the Federal Reserve's March meeting. Not only are interest rates high at the moment, but it's unlikely that the Fed will cut rates at its meeting this month given the current state of inflation.
