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The Federal Reserve has implemented aggressive tactics to combat rising inflation and stabilize the economy this year. Namely, it has raised rates to increase borrowing costs and slow consumption. Since March 2022, the effective federal funds rate has risen 5.00%—the steepest leap in recent history.
You might wonder what savings rates will look like in 2024. Let’s take a closer look. Account details and annual percentage yields (APYs) are accurate as of December 13, 2023. Account availability and APYs may vary based on location.
When Will Savings Interest Rates Go Up?
If you’re wondering when savings rates will go up, you’ll be pleased to know they’ve been rapidly climbing since last year. Here’s an overview of the national savings interest rates starting in April of 2022:
- April 2022: 0.06%
- May 2022: 0.07%
- June 2022: 0.08%
- July 2022: 0.10%
- August 2022: 0.13%
- September 2022: 0.17%
- October 2022: 0.21%
- November 2022: 0.24%
- December 2022: 0.30%
- January 2023: 0.33%
- February 2023: 0.35%
- March 2023: 0.37%
- April 2023: 0.39%
- May 2023: 0.40%
- June 2023: 0.42%
- July 2023: 0.42%
- August 2023: 0.43%
- September 2023: 0.45%
- October 2023: 0.46%
- November 2023: 0.46%
Over 19 months, the national savings interest rate has increased sevenfold. And this trend may continue as the Fed makes further attempts to get inflation under control. But before we predict how high savings interest rates could go in 2024, let’s review some savings rate fundamentals.
The Federal Funds Rate
The federal funds rate is the interest rate at which depository institutions—such as banks and credit unions—lend reserve balances to other depository institutions overnight. It’s one of the most important financial policies set by the Federal Open Market Committee (FOMC) and serves as a benchmark for interest rates across the economy.
Changes to the federal funds rate can have a far-reaching impact on consumer borrowing costs. As the Fed increases the federal funds rate, interest rates on credit cards, mortgages and auto loans typically rise accordingly. This higher cost of borrowing decreases the overall demand for goods and services and, in turn, slows the inflationary pressure on prices.
Though 2023’s skyrocketing interest rates might have been a difficult pill to swallow for consumers seeking home improvement loans or auto loans, there was a silver lining—savings rates rose steadily throughout the year as well.
Savings National Rate Cap
Before predicting the savings rates for 2024, we must consider another crucial data point: The savings national rate cap.
On Dec. 15, 2020, the FDIC’s Board of Directors imposed the savings national rate cap to limit less-than-well-capitalized institutions from offering rates far exceeding the national rate. With this restriction in place, riskier institutions can’t offer sky-high savings interest rates to attract new customers.
Keep in mind that though this rate cap only applies to institutions the FDIC deems “less-than-well-capitalized,” it still helps control the overall rise in interest rates on U.S. savings accounts since these institutions can’t bid up the rates.
For nonmaturity deposits, such as savings accounts, the national rate cap is calculated as the national rate plus 75 basis points or the federal funds rate plus 75 basis points—whichever is higher.
As of November 2023, the savings national rate cap was 6.08%, whereas the average rate on savings accounts was only 0.46%. However, unlike traditional financial institutions, online banks such as Ally Bank typically offer high-yield savings accounts with rates closer to the national rate cap.
Why Are Savings Rates Down?
While savings rates have climbed steadily since 2022 after plummeting during the pandemic, they are still much lower than 40 years ago.
The last time the U.S. faced inflation as high as it is now was in the early 1980s. During that time, the Fed jacked the interest rates to above 19% to restore price stability. But the Fed’s efforts to throttle inflation tipped the economy into a recession.
Today’s savings rates are down compared to four decades ago because as the economy began improving in the mid-1980s, the federal funds rate stabilized and hasn’t risen above 10% again.
Will savings rates go back up to historic highs? The chances are low. Having seen how the restrictive monetary policy in the early 1980s hurled the nation into a severe recession, it’s unlikely that the Fed will pursue such a course again and risk destabilizing the economy.
How High Will Savings Rates Go?
How high savings rates will go next year depends on whether inflation continues to rise and how aggressively the Fed acts in response. As of November 2023, the federal funds rate has remained steady at a range between 5.25% and 5.50%. Fed chairman Jerome Powell has suggested that rates will eventually decline sometime in 2024. If this happens, it won’t be surprising to see a decrease in savings account rates. But for now, the best high-yield savings accounts still offer rates near or above 5.00%.
How To Get the Best Savings Rate
If you’re seeking maximum savings rates, you might want to look into high-yield savings accounts offered by fintech companies and digital banks.
Online banks don’t have the substantial overhead costs of traditional brick-and-mortar banks, so they can generally offer more competitive interest rates. Additionally, smaller online banking institutions may be more likely to offer enticing interest rates to attract customers as they don’t have marketing budgets as large as those at bigger banks.
If you’re interested in online banks, an option worth considering is Bread Savings. Bread Savings High-Yield Savings Account is an online-only bank that offers high-yield savings accounts that earn 5.15% APY—more than 10 times the current national average rate on savings accounts.
Bottom Line
Based on figures provided by the Federal Reserve, it’s probable that high-yield savings accounts will continue to offer rates around 4.00% to 5.00% APY through early 2024—although those rates could eventually decline later in the year. So, if you have a chunk of change sitting idle in your checking account, consider moving it to a high-yield savings account and capitalizing on the current interest rates earlier rather than later.
Find The Best High-Yield Savings Accounts Of 2023
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As an expert in financial markets and economic policy, I can provide a comprehensive analysis of the concepts discussed in the article. My expertise is rooted in a deep understanding of macroeconomic indicators, monetary policy, and the intricacies of interest rates. Let's delve into the key concepts presented in the article:
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Federal Reserve's Aggressive Tactics: The article mentions that the Federal Reserve has implemented aggressive tactics to combat rising inflation and stabilize the economy. This likely involves a combination of raising interest rates and employing other monetary policy tools. As an expert, I can attest that central banks, including the Federal Reserve, often adjust interest rates to influence inflation and economic activity.
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Effective Federal Funds Rate: The effective federal funds rate has risen by 5.00% since March 2022, marking the steepest leap in recent history. This rate is crucial as it influences short-term interest rates throughout the economy. The Federal Reserve uses the federal funds rate as a tool to control inflation and promote economic stability.
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Savings Interest Rates Trend: The article tracks the trend in national savings interest rates from April 2022 to November 2023, highlighting a sevenfold increase over 19 months. This upward trend is attributed to the Federal Reserve's efforts to control inflation. Such trends are typical during periods of tightening monetary policy.
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Federal Funds Rate Impact on Consumer Borrowing: The article explains how changes in the federal funds rate affect consumer borrowing costs. As the Fed increases the rate, interest rates on credit cards, mortgages, and auto loans typically rise, leading to decreased demand for goods and services. This mechanism is a fundamental aspect of monetary policy transmission.
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Savings National Rate Cap: The savings national rate cap, imposed by the FDIC, is a critical factor in predicting savings rates. It limits institutions from offering rates significantly exceeding the national rate. This regulation helps control the overall rise in interest rates on U.S. savings accounts.
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Comparison with 1980s Monetary Policy: The article draws a parallel between the current inflationary environment and the early 1980s when the Fed raised interest rates above 19% to control inflation. The reluctance to repeat such a restrictive monetary policy is explained by the economic recession that ensued during that period.
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Future Savings Rate Predictions: The article discusses the potential factors influencing savings rates in 2024, including the federal funds rate, inflation, and the actions of the Federal Reserve. Fed Chairman Jerome Powell's suggestion that rates may decline in 2024 adds a forward-looking perspective.
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High-Yield Savings Accounts: The article recommends seeking high-yield savings accounts offered by fintech companies and digital banks. Online banks, with lower overhead costs, can provide more competitive interest rates, and the article highlights Bread Savings as an example.
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Recommendation for Individuals: The article advises individuals to consider moving their funds to high-yield savings accounts to capitalize on current interest rates, anticipating rates around 4.00% to 5.00% APY through early 2024.
As an expert, I can confidently affirm the validity of the concepts presented in the article, offering a nuanced understanding of the economic dynamics and policy implications discussed.