The Federal Reserve made official on Wednesday what many economists and experts had already predicted: It is raising its benchmark interest rate to between 5% and 5.25%. The increase is the 10th consecutive increase until March 2022.
“The US banking system is sound and resilient. Tighter credit conditions for households and businesses could weigh on economic activity, hiring and inflation,” the Fed said in a press release announcing the hike. “The extent of this impact remains uncertain. The Committee is very attentive to inflation risks.”
What does that rate practice look like? Viewed through the prism of dollars and cents, each 0.25 percentage-point increase in the benchmark rate equates to an additional $25 annually in interest on a $10,000 loan. Therefore, prospective home buyers or owners looking to refinance their existing loans can expect to pay significantly more than they did twelve months ago.
That said, the news of interest rate hikes is not all bad. As those who are open a Certificate of Deposit (CD) or High Yield Savings Account As you know recently, the rise in interest rates is a boon for such deposit vehicles. Accordingly, those with regular savings accounts may want to strongly consider it Move their funds to a higher yield one.
Now see how much more you can earn with a high-yield savings account here.
What the Fed’s Interest Rate Hike Means for Savings Accounts
In short: Wednesday’s interest rate hike may be bad news for some sectors of the economy, but it will likely increase the appeal of high-yield savings accounts.
To understand how much more beneficial a high-yield account is than a regular account, just look at interest rates The regular account rate is about 0.39% according to the FDIC. But APYs on high-yield accounts — before today’s news — were in the 3.5% to 4.5% range or higher. Which may increase now.
“It might be a good idea to switch to a high-yield savings account soon because of the Fed’s rate hikes,” Holly Carey, a CFP and VP, senior financial planner at First Horizon Advisors, an asset management firm, said recently. CBS News. “These interest rate increases, while (probably) smaller than most of the 2022 increases, will likely see accounts increase their APYs,” Carey said.
But is a high-yield savings account really worth it? Using a $5,000 deposit as an example, a regular savings account would only grow to $5,019.50 after one year. But the same amount in a high-yield account with a 3.5% rate would jump to $5,175.00 over the same period. And that at 3.5%! Chances are good that you can get a higher rate now that interest rates have been raised again.
Start exploring your high-yield savings account options here now to get started
Other benefits to know
A high-yield savings account isn’t just advantageous for its interest rate. Here are two more benefits to know:
They are easy to manage: High-yield savings accounts work like regular savings accounts. So the flexibility you’re used to with regular savings accounts – deposits, withdrawals, cash access, debit cards, etc. – is the same. The difference? You will earn exponentially more interest in addition to your normal banking activities.No risk: inside Today’s inflationary environment There aren’t many risk-free money moves you can make. But keeping your money in a high-yield savings account is one of them. You don’t lose any of the money you deposit (unless, of course, you withdraw). Interest rates are adjustable so you’re likely to make less money in the future, but considering Wednesday’s news that’s unlikely to happen anytime soon. Even when that day comes, your policy balance will be healthier than it would have been in a regular account.
MoneyWatch: Managing Your Money
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