Last week, news broke that the Federal Reserve had raised interest rates again. While the increase affects everything from non-fixed mortgage payments to credit card debt, there is one silver lining — savings accounts can really benefit.
While the economy remains turbulent, there’s one good thing you can do now to take advantage of current circumstances: Invest in a savings account. As NBC noted, “A side effect of those increased interest rates is that banks can increase the amount of money they pay to consumers who put some of their dollars in savings accounts.”
In fact, interest rates on savings accounts have never been better — the best they’ve been in about 40 years, per NBC. The average currently is around 0.17% annually, which amounts to about an extra 17 cents for every hundred dollars you invest. That may not sound like a lot, but it can add up if you already have a lot of funds invested, or have the means to add more into the account now.
Another option is a high-yield savings account such as a CD, or Certificate of Deposit. Unlike a savings account, in which you can remove funds at will without penalty, a CD has a fixed term for which the money stays untouched and, in return, the bank offers a higher return on interest accumulation, per Investor.gov. These accounts are protected by the FDIC up to $250,000 too, so it’s a very safe way to invest.
Currently the annual interest rate for these types of accounts is sitting at around 2%, per Motley Fool, a stark increase from the 1% return earlier this year. Further, as the Fed is projected to continue to raise rates into 2023, the interest on CDs could rise to 2.5%, 3% or more. Doing the math, that means if you invest $1,000 into a CD right now, that’s at least $20 you’re earning every year you keep it invested, and it could go up to $25 or $30 if projections are right.
Every bank is different in the annual interest rates they offer on savings accounts and high-yield accounts. As such, experts say to shop around. In particular, noted NBC, financial institutions which are mostly online (and don’t have physical locations) can offer more because they have fewer operating costs. NBC contributor Rob Wile quoted finance expert Chanelle Bessette on the matter: “Some of these banks offer more than 1% or 2% — and in some rare cases more than 3% on [high-yield] savings accounts.”
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