How the Fed’s Latest Interest Rate Will Affect Your Bank Savings

Editor’s note: (This is excerpted from a story originally published on March 22, 2023. )

New York (CNN) Banking is at the forefront of many minds after some surprising bank failures and moves by US regulators. Increase confidence In the financial system.

But the Federal Reserve decided on Wednesday Increase its prime interest rate For the ninth time since March last year, it has brought welcome news for savers looking to get more returns on their money.

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

Especially high rates, not at the big banks

Higher rates mean more of your liquid savings — earmarked for short-term goals like emergency expenses or a vacation fund, or even a down payment you’ll need in the next 12 months — could earn you some money after a few years of earning practically nothing. That means you still keep your money in the biggest banks. They offer very low rates for savings.

But online high-yield savings accounts now offer rates as high as 5%, higher than the national savings account average of 0.23%.

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

Make sure you choose one that is FDIC insured so you can rest easy Your deposit is protected up to $250,000 If the bank gets into trouble.

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

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So, shop around.

Another high-yield savings option

Given today’s high rates of inflation – it currently exists Running at 6% – The Series I Savings Bonds Can be attractive because they are designed to protect your money’s purchasing power. If you buy before the end of April, you can get the iBond’s current rate of 6.89%.

If you complete your purchase before it resets on May 1, the rate will remain in effect for six months. If inflation decreases, the rate on bond I also decreases.

There are some limitations: Only you can invest Maximum $10,000 per year. Your bond is non-redeemable in the first year. If you’re in the money between two and five years, you’ll lose the previous three months’ interest.

“In other words, IBonds are not a substitute for your savings account,” McBride said.

Still, they preserve the purchasing power of your $10,000 if you don’t need to touch it for at least five years. They can be particularly beneficial for people who plan to retire in the next five to 10 years, as they act as a safe annuity investment that can be drawn on if needed in the first few years of retirement.

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