Will CD and savings interest rates go higher? What to know now
After months of promising data showing cooling inflation, July brought some unwelcome news: Inflation is ticking back up again. While it's too early to tell if that report was an indication of worse economic news to come, it wasn't what economists were hoping for, either.
With stubborn inflation comes higher interest rates meant to defeat it. But after the Federal Reserve raised rates to a 22-year high last month, many are now wondering if the end of rate hikes really is imminent — or if they'll continue to increase as the year progresses.
Higher interest rates make borrowing more expensive. But they also raise the benefit of traditional savings vehicles, like certificates of deposit (CDs) and high-yield savings accounts. Rates on both are exponentially higher than they were a few years ago, and many times greater than what can be secured with a regular savings account. But, in light of recent developments, will CD and savings interest rates go even higher?
Start by exploring your savings account options here to see how much more you could be earning.
Will CD and savings interest rates go higher?
While many experts were predicting a pause in interest rate hikes prior to an eventual drop later this year or in 2024, the new inflation developments have made that expectation less clear. It's possible now, if not likely, that the Federal Reserve will again raise rates, making CDs and high-yield savings accounts great options to both grow and protect your money.
"It's really Fed driven at this point," John Macke, chief financial officer at Merchants Bank of Indiana, recently told CBS News. "If they raise rates again because of economic data or trends they don't like, that will likely cause upward pressure on deposit rates."
How much that upward pressure pushes rates on these accounts is unknown. Rates are already high for both CDs and high-yield accounts. It's currently possible to secure a high-yield savings account with an interest rate of 5% APY or more.
There are multiple CDs, meanwhile, offering 5.20% APY or better. Short-term CDs, in particular, are earning significant amounts of interest in just a few months span. Compared to the paltry 0.42% savers can secure with a regular account, it's clear that now is a great time to open one or both of these accounts.
High-yield savings accounts, in particular, are worth opening now because you'll still be able to access your money freely. And rates will increase as the Fed moves them upwards.
While CDs are also favorable, you'll need to lock your money away for the full CD term to earn the full interest. And unless you have a bump-up CD, you won't be able to get a higher rate until the CD term expires. High-yield savings accounts, meanwhile, have variable rates, so they can more easily increase if and when the Fed raises interest rates.
Not sure what rate you'd be eligible for? Find out here now!
How much can you make with CDs and savings accounts now?
Using a $5,000 deposit as an example, here's how much savers can expect to earn by depositing their money in a high-yield savings account or CD now:
- After 12 months with a regular savings account at 0.42%: $5,021.00
- After 12 months with a high-yield account at 4.50%: $5,225.00
- After 12 months with a CD at 5.20%: $5,260.00
Obviously, the more savers put into their account, the more they can earn, thanks to compound interest. Here's what those figures look like with a $10,000 deposit:
- After 12 months with a regular savings account at 0.42%: $10,042.00
- After 12 months with a high-yield account at 4.50%: $10,450.00
- After 12 months with a CD at 5.20%: $10,520.00
The bottom line
No one knows with certainty where interest rates are heading. But if the past is a reliable indicator, they could be heading up yet again after inflation ticked up in July. If they do — or even if they remain at their current elevated levels — now is a great time to open a CD or savings account. By leaving your funds in a regular account, you're essentially losing money, so get started today and be better positioned to take advantage of another rate hike in the fall.
