How Did Interest Rates Change in 2023?

In 2023, savings interest rates saw significant increases due to the Federal Reserve’s efforts to combat high inflation. Between March 2022 and July 2023, the Federal Open Market Committee (FOMC) raised the federal funds rate 11 times. This aggressive stance resulted in higher interest rates on credit cards and other short-term debt, but also caused interest rates on certain savings products to spike.

Before these rate hikes, high-yield savings accounts offered annual percentage yields (APYs) below 1%. By the start of 2023, they had reached 4%, and by the end of the year, they surpassed 5%. Other savings products, including money market accounts and certificates of deposit (CDs), also experienced sharp increases during this period.

What Experts Predict for 2024

Experts predict a slight drop in savings interest rates in 2024. The FOMC approved a plan in December to cut interest rates three times in 2024, with an expected rate cut of 0.25% each time. Further rate cuts in 2025 and 2026 would bring the federal funds rate even lower.

According to the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, the inflation rate is expected to decline further in 2024 to 2.5%, still higher than the Fed’s 2% target rate. Staying up to date on monthly inflation reports and the Fed’s meetings throughout the year can give you more insight into what’s going on. But if the agency starts reducing its rates, expect your savings rates to follow suit.

How to Make the Most of Savings Interest Rates

While savings interest rates aren’t expected to fall drastically, as inflation continues to slow, look for opportunities to take advantage of high savings rates while you can. Here are some steps you can take to maximize your interest earnings:

Open a High-Yield Savings Account

Not all savings accounts are created equal. While some banks are offering APYs of 5% or more, the national average savings account interest rate is just 0.46%, according to the Federal Deposit Insurance Corp. (FDIC). If you’re earning a subpar rate with your current bank, check to see if it also offers a high-yield savings account.

Shop Around for a Better APY

If your bank doesn’t offer a high-yield savings account, or its interest rate isn’t competitive, research and compare rates from other financial institutions to see if you can earn more elsewhere. Online banks tend to offer the best APYs on high-yield savings accounts, but you may also find great options with credit unions and traditional banks.

Lock In a Fixed Rate With a CD

While high-yield savings accounts typically offer higher interest rates than traditional savings accounts, the rates are variable. This means that once the Fed decreases interest rates, your rate will be quick on its heels. CDs, on the other hand, offer fixed rates for the length of their term, which can range from one month to several years. Consider CDs if you have money you don’t need access to for the duration of the term.

The Bottom Line

With the budgets of many Americans still recovering from inflation that reached a 40-year high last year, those who have been able to save have found a silver lining in the form of high interest rates on savings accounts. While savings account interest rates are the highest they’ve been in years, experts forecast that they’ll likely start to decline in 2024. Although it’s unclear how much they’ll drop, there’s still time to enjoy the benefits of high interest rates while you can.

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