You work hard to earn your money and would like for it to do the same for you in return. As part of a balanced financial plan, it’s a good idea to have cash set aside in savings. But are you confident that your bank’s interest rates are on par with accounts at other banks? Have you been seeing interest rates increase, while your bank doesn’t seem to be paying more? Have you heard about the Fed raising interest rates due to inflation, but aren’t exactly sure how this may relate to your savings? Now there’s talk about the Fed lowering interest rates, how will this impact your accounts?

The best way for you to get the most from your cash begins with a little research and understanding some of the terms commonly used when discussing your money.

What is the average yield for savings accounts?

According to Bankrate, the national average yield for savings accounts this week is 0.57% APY (annual percentage yield).

What does APY mean?

An annual percentage yield (APY) is a percentage that represents the total amount of interest you earn on a deposit account or an investment over one year. This amount includes compound interest.

Who is the Fed?

The Fed is the Federal Reserve, which is the central bank of the United States. It controls the monetary policy.

The Fed has been raising interest rates since early 2022. By how much?

March 17, 2022, rate change +0.25%, Fed Funds Rate went from 0.25% to 0.5%

May 5, 2022, rate change +0.50%, Fed Funds Rate went to 1.0%

June 16, 2022, rate change +0.75%, Fed Funds Rate went to 1.75%

July 27, 2022, rate change +0.75%, Fed Funds Rate went to 2.5%

Sept. 21, 2022, rate change +0.75%, Fed Funds Rate went to 3.25%

Nov. 2, 2022, rate change +0.75%, Fed Funds Rate went to 4.0%

Dec 14, 2022, rate change +0.50%, Fed Funds Rate went to 4.5%

Feb. 1, 2023, rate change +0.25%, Fed Funds Rate went to 4.75%

March 22, 2023, rate change +0.25%, Fed Funds Rate went to 5.0%

May 3, 2023, rate change +0.25%, Fed Funds Rate went to 5.25%

July 26, 2023, rate change +0.25%, Fed Funds Rate went to 5.5%

What is the federal funds rate?

The federal funds rate is an interbank rate, which becomes the basis for other interest rates such as the prime rate. The prime rate impacts consumers with how much it will cost them for things like mortgages and loans.

Why does the Fed raise rates?

The Fed raises rates to help curb inflation.

Where can I get more interest?

Money Markets and CDs started to increase in 2022 as the Fed raised rates. However, many bank accounts have not kept pace with improved APYs for account holders.  As competition from other banks warrant it, your financial institution may raise interest rates, however you should check that your rates are competitive.  Your financial advisor can assist you with determining if any of these additional options are appropriate for you:

  • CDs – A CD is a Certificate of Deposit. It is an account that you open with a bank or credit union. You choose a length of time to keep your deposited funds in the account (term) and in return, your money will generally earn a better rate than through a traditional savings account.
  • Treasuries – Treasuries are government debt securities issued by the U.S. Federal government. Investors can choose the maturity (the time when the principal is repaid) that best matches when you need the funds.
  • Brokerage Account Money Market Mutual Funds – Money market mutual funds are a type of mutual fund that invests in highly liquid, short-term debt securities.

How much should I keep in my bank account?

You should have enough emergency funds available in a bank account. How much is enough? An ideal goal is to set aside between three to six months’ worth of essential living expenses. Those who are self-employed with fluctuating income or families with children may want to aim for six months or more. Aim to set aside additional funds for emergencies only. These are things like the unexpected boiler repair, a big bill from the auto mechanic, or medical bills.

Keep your eye on your cash.

Interest rates are currently at a 22-year high of 5.25% to 5.5% but it is likely we will begin seeing lower rates in 2024. As the Federal Reserve continues to adjust interest rates, it can be beneficial for you to keep a close watch on your bank accounts. The only way to ensure that your cash is earning as much as possible is to proactively monitor your accounts and adjust as necessary. If you have any questions, please feel free to contact us.