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- When the Federal Reserve adjusts the federal funds rate, the decision affects savings account interest rates.
- In a December press conference, Federal Reserve Chair Jerome Powell said interest rates are likely at their peak.
- The Fed will likely keep the federal funds rate the same in January, according to the CME FedWatch Tool.
While interest rates for savings accounts have steadily gone up throughout 2023, they unfortunately can’t stay that way forever. Savings account rates are impacted by the Federal Reserve’s decisions and can go up or down over time.
Here’s what you can expect to happen to savings account rates after the next Federal Open Committee Market (FOMC) meeting on January 30 and 31.
Will savings rates drop after the January Fed meeting?
It’s unlikely national savings rates will drop significantly after the next Fed meeting.
The Fed would need to start cutting the federal funds rate for national savings rates to go down. According to the CME FedWatch Tool, there’s over a 95% chance that the Fed will keep rates the same at its January meeting.
Interest rate cuts are likely to happen later in 2024, though. The Fed has signaled three interest rate cuts in 2024, according to the Summary of Economic Projections released on December 2023.
“While participants do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table. If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6% at the end of 2024, 3.6% at the end of 2025, and 2.9% at the end of 2026, still above the median longer-term rate,” said Chair Jerome Powell at the December Fed meeting press conference.
What happens to savings rates when the Fed raises interest rates?
The Federal Reserve has raised the federal funds rate several times in 2023 to combat inflation, which is why savings rates are still competitive in early 2024.
According to the CME FedWatch Tool, there’s less than a 5% chance the Federal Reserve will raise rates at its January meeting. It’s still possible for a rate hike to occur in the future, though.
“While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured. We are prepared to tighten policy further if appropriate,” said Powell in the December Fed meeting press conference.
How high will savings rates go in 2024?
In early 2024, savings rates are generally expected to be relatively stagnant.
The average savings account interest rate is 0.47% APY (Annual Percentage Yield), according to the FDIC. However, it’s also important to point out that many online financial institutions have much higher savings rates than the national average. The best savings account interest rates pay well above 4% APY right now.
Once the Fed plans to start cutting rates, however, savings rates will likely begin to go down in 2024. Experts forecast different dates on when the Fed will start cutting interest rates.
Is now a good time to open a high-yield savings account?
It could be a good time to open a high-yield savings account if you want to open a new bank account for emergency savings or save for a short-term goal. High-yield savings accounts pay more interest than traditional savings accounts at brick-and-mortar banks.
Keep in mind high-yield savings accounts have a variable interest rate. This means the rate will fluctuate over time. If you’re looking for a bank account that offers a fixed interest rate, the best CDs allow you to lock in a high rate for a specific timeframe.
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