5 Ways to Prepare for Better Interest Rates on Savings Accounts | News
The Federal Reserve raised its rate twice in 2022 and said further hikes were likely. These changes are designed to bring inflation down to manageable levels, but they have ripple effects in other areas of the economy – with mortgage rates and credit card interest rates rising and the stock market moving in the other direction.
The good news for consumers is that interest rates on savings accounts usually go up when the Fed raises rates, which means more money in their pockets. If Rates Rise, 4 in 5 US Consumers Plan to Act According to New NerdWallet online survey conducted in April 2022 by The Harris Poll. Popular actions they plan to take include sending more money to their savings account and switching banks if they can find a good rate.
You might be ready to make a move, too. Put yourself in a position to make a smart one by doing these five things.
1. Be patient
Fluent best interest rates on savings accounts are better than January rates, but not by the same margin as mortgage rate increases. Why? One commonly cited reason is that banks are already overflowing with more than $18 trillion in deposits, nearly 30% more than in March 2020, according to the Federal Reserve. Since higher interest rates would likely stimulate even more deposits, banks do not have a strong incentive to raise rates quickly. Although the pace is slow, expect interest rates on most savings accounts to continue to climb as interest rates rise overall.
2. Understand your options
There are many types of savings accounts. High-yield savings accounts generally have better interest rates than traditional savings accounts, although a common compromise is limited or no physical locations.
You may also see good rates on money market accounts or if you buy a certificate of deposit or CD. However, if you need frequent access to your funds, these might not be right for you.
3. Do your research
To get started, check out all the rates available in your area and online. Before opening a new account, review the details beyond the interest rate. Monthly fees, high account minimums, or the fine print that reveals a sign-up bonus are Too good to be true are reasons to pump the brakes.
Finally, compare any new rate to your current rate. For example, a rate of 1% is ideal if your current rate is 0.05%. But if your rate is already 0.8%, the benefits might not outweigh the hassle of switching. If your account balance is $2,500, for example, finding a 0.25% higher rate will result in an additional $7 per year.
4. Plan your cash flow needs
Online banks often have good interest rates, but depositing and withdrawing money can be tricky. If you frequently deposit or withdraw money, the higher rate may not be worth it.
However, if it still makes sense to change, you will need a plan. One option is to make cash deposits into another checking account or savings account at a bank that offers in-person services and transfer them to the savings account with higher interest.
For withdrawals, you can transfer money to the account that has in-person services. Or, you can use an ATM. If you do, make sure your bank or ATM won’t charge you a fee; a single transaction fee could wipe out months’ worth of interest.
5. Get rid of your other debts
Having your money earn even more money just by sitting on an account is an appealing idea. But debt reduction can have a lot greater impact on your overall finances than finding a savings account with a higher interest rate. Before researching interest rates, first develop a plan to reduce credit card debt or pay off or refinance student loans.