How the Fed’s latest rate increase will affect your bank savings

Editor’s Note: This is excerpted from a story that originally ran on March 22, 2023.

New York
CNN
 — 

Banking has been top of mind for many people in the wake of some surprise bank failures and moves by US regulators to boost confidence in the financial system.

But the Federal Reserve’s decision on Wednesday to increase its key interest rate for the ninth time since March last year brought welcome news for savers seeking higher yields on their money.

“Returns on savings accounts and CDs are the best in 15 years,” said Greg McBride, chief financial analyst for Bankrate.com.

Higher rates mean your most liquid savings — those set aside for emergency expenses or short-term goals like a vacation fund or even a down payment that you’ll need in the next 12 months — can finally earn some money for you after years of earning practically nothing. Unless, that is, you’re still keeping your money at the biggest banks. They are offering the lowest rates on savings.

But online high-yield savings accounts now offer rates as high as 5%, well above the 0.23% national savings account average, according to Bankrate.

“You’re leaving a lot of money on the table if you don’t go to an online bank,” McBride said.

Just make sure to choose one that is FDIC insured, so you can rest easy knowing your deposits up to $250,000 will be protected should the bank run into trouble.

Among the highest-yielding certificates of deposit, there are some federally insured one-year CDs with rates as high as 5.15%, well above the current 1.62% national average.

So, shop around.

Given today’s still-high rates of inflation — which is currently running at 6% — the Series I savings bonds may be attractive because they’re designed to preserve the buying power of your money. You can still get the current 6.89% rate on the I Bond if you purchase it before the end of April.

That rate will stay in effect for six months if you complete your purchase before it resets on May 1. If inflation falls, the rate on the I Bond will fall, too.

There are some limitations: You can only invest a maximum of $10,000 a year. You can’t redeem your bond in the first year. And if you cash out between years two and five, you will forfeit the previous three months…