The Federal Reserve has been steadily raising interest rates since early 2022 as it aims to control inflation. As a result, holding your money in a high-yield savings account has become increasingly attractive because the interest you can earn on your deposits has skyrocketed to record levels in 2023.
In fact, the annual percentage yield (APY) paid out by the top nationally available high-yield savings accounts is 5% or higher. This is much higher than the average rates listed by the Federal Deposit Insurance Corporation (FDIC) of 0.40% for savings accounts.
Since savings account yields fluctuate based on the federal funds rate, and the Federal Reserve may or may not make changes to the target rate this week, it's not possible to lock in these enticing yields over the long term. However, with rates as high as they are now, it could be the perfect opportunity to open a high-yield savings account to ensure that you're earning as much as possible on your deposits while you can. The sooner you deposit funds into a high-yield account while rates are high, the longer you'll enjoy higher interest payments before rates fall.
Key Takeaways
- The top high-yield savings accounts pay significantly higher interest rates than traditional savings accounts.
- The Federal Reserve is expected to announce tomorrow a pause in rate hikes for now, but eventually rates will fall, meaning your time to maximize your savings account funds could be limited.
- Opening a high-yield savings account is as simple as shopping around for the right rate and institution, and having your essential documents handy.
Benefits of High-Yield Savings Accounts
High-yield savings accounts pay significantly higher interest rates on your deposits than traditional savings accounts. In fact, the top high-yield accounts currently pay as much as 10 or 13 times the national average, which makes a big difference in how your savings accumulate, and can help speed you toward your financial goals.
High-yield savings accounts are often offered by internet-only banks or through the online division of larger banks that may also have a brick-and-mortar presence. Credit unions may also offer savings products with above-average yields.
Even if you open a savings account with a smaller financial institution, you can likely rest assured that your deposits are protected. Most banks carry FDIC insurance, which protects deposits of up to $250,000 per individual per institution. If your bank fails, you won’t be at risk of losing your savings. Credit union accounts receive similar protection through the National Credit Union Administration (NCUA) program.
Look for the FDIC or NCUA logo or language about membership on the bank or credit union's website or in a branch. That lets you know the institution's depositors are federally insured.
Getting Started on Your Savings Boost
In most cases, you can open a high-yield savings account online in a matter of minutes. The financial institution will ask for your Social Security number and some form of government-issued identification, but with a few clicks, you could be ready to capitalize on today's high rates.
Once you've opened your new account, you can use an electronic transfer to deposit funds. Even if you're transferring funds from another financial institution, you can automatically send the money by entering your new bank's routing and account numbers. Just keep in mind that transfers between banks could take up to three days, and you won't be able to access your money while the transaction is being processed.
Planning for Declining Rates
The rates that you can earn on your savings deposits vary and depend on the monetary policy decisions of the Federal Reserve, which is scheduled to have its June meeting today and tomorrow. Although rates have been climbing over the past year, leading to today's outsized savings opportunities, it is possible the Fed will pause its rate-hiking cycle and that rates will eventually begin to decline. The high-yield savings account rates are unlikely to plummet immediately, but the Fed changes will have a ripple effect.
The potential for rates to come down to earth in the coming months means that the currently high savings yields won't be around forever. With that in mind, maximizing your exposure to these high rates while you still can is a good idea.
However, if you are looking for a way to secure a fixed yield for an extended period, you could consider a certificate of deposit (CD). For instance, if you don't need access to your money for four years, you could lock in a rate of around 5% or more for that entire time frame with the top nationally available CDs.
