When you can expect higher interest rates on savings

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The past few years have been brutal for savers looking to get more out of their money. Interest rates have been incredibly low, averaging 0.06% for savings nationwide. The days of fintech companies competing for customers by offering ever-higher savings account APRs are long gone.

But this year, we know that the Federal Reserve could raise interest rates a few times, potentially starting in March. Consumer banks base their rates for products like loans, credit cards, savings accounts and CDs on those of the Fed – when the Fed raises rates, so do the banks.

Even if the Fed raises its benchmark rate, it will take some time for this to reflect in your bank account. The reason is simple: savers have stashed away so much money during the coronavirus pandemic that banks no longer need to compete for our dollars – they’ve had enough.

In fact, the interest rate on your savings might not increase at all this calendar year. It is particularly painful for all of us who are feeling the effects of inflation on our budgets. In fact, we are more likely to experience the negative impact of higher rates – which means borrowing money from a bank will cost more – than the positive. This could aggravate inflationary pressure.

Your best bet for the highest rate is always at online banks – lower overhead means they can offer a bit more for your deposit than the typical brick-and-mortar institution, according to Bankrate. Ally, Discover and Goldman Sachs all currently offer savings accounts with an APY of 0.5%. It’s not much, but it’s at least higher than the 0.06% national average.

Other than that, some CDs may offer higher rates, but you won’t be able to touch your money for six months to several years, depending on the terms, without incurring a penalty. It may not be worth it to you when the interest rates offered are still only hovering around 1%.

Investing is another potential hedge against inflation. Returns are never guaranteed, but there is the potential for higher gains than you might otherwise get. If you won’t need the money for, say, more than five years, then investing may be a good idea.

That said, this is no place for your emergency savings – recent market volatility shows why you don’t want all your money tied up in a riskier investment – which you will want in an insured savings account by the FDIC.

Currently, my emergency fund sits in the same savings account I’ve had since I graduated from college. It doesn’t pay much, but it’s okay. Low rates don’t last forever and I know that’s for sure.

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