Savings and money-market accounts that pay record interest rates are among the best. Can this increase them?
In its effort to combat decades of high inflation, the Federal Reserve announced yesterday that it has raised its benchmark interest rate, which was previously at its lowest level, by a further 1%. 1
Federal Reserve System. Open Market Operations .
You may be able to get even better rates with high yield savings accounts and money market account if you already have some cash.
What happened with the Fed yesterday?
In March 2022 the Federal Reserve raised the Federal Funds Rate aggressively, as high inflation started to appear after the pandemic. In June 2022 the rate of inflation had reached its highest level in 40 years. 2 The Fed raised the benchmark rate rapidly by 4.25% over a nine-month period.
The Fed may have eased off the pedal a little in 2023 but it still increased the Fed Funds Rate four times in the past five meetings. (It held rates at the same level in June.) the quarter-point hike added another 1.00% to 2023’s benchmark rate, bringing it up to 5.25-5.50%. This is the highest rate we have seen in over 22 years
The Fed’s Move and Savings
Federal funds rates directly impact the rate of interest that credit unions and banks are willing to offer consumers on their deposits. A high federal funds rate makes overnight lending from the central banks more costly for credit unions and banks. This in turn encourages them to secure deposits from their customers.
Banks and credit unions increase their rates on saving account and money-market accounts, as well as certificates of deposit (CDs). You can view the effect of the Fed’s rate hike campaign for 2022-2023 on top saving account rates over the past year-and-a-half.
Are Savings and Money Market Interest Rates Set to Rise?
Although the Fed announced their latest rate hike yesterday, it had been anticipated by many since June. Many banks and credit card unions were confident enough to increase rates before the announcement.
It’s assumed, however, that certain institutions either waited to increase rates until after the Fed announcement or that they will now have to raise rates in order to remain competitive, since other institutions are raising their rates on savings accounts and money markets.
The next Fed rate setting meeting is not scheduled until September 20. This means that the Fed funds rate will remain the same for the following eight weeks.
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