On Wednesday, the Federal Reserve held interest rates steady. The short-term federal funds rate remained at its target range of 5.25%-5.50%. Since March 2022, the Federal Open Market Committee (FOMC), the central bank's rate-setting group, has increased interest rates 11 times in an attempt to combat inflation.
The central bank left rates unchanged in January for a fifth consecutive meeting, as had been expected, and said: "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." The central bank indicated in its policy statement and post-meeting press conference that it no longer forecasts an economic downturn, but would be prepared to act if conditions change.
Rates on savings accounts, which rose in tandem with the rise in interest rates, may start to taper off or decline next year as rates start to come down. As such, locking in rates now might be a smart move. Here's what you need to know about the Fed’s impact on savings rates.
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What this means for savings accounts
Understandably, the question on many people's minds after the latest Fed announcement is: are we at the peak for savings accounts?
When the Fed raises interest rates, typically rates on savings accounts also go up. This is because offering a high APY (annual percentage yield) on accounts is an effective way for banks to compete for customers and attract deposits. For this reason, you’ll likely see the highest rates among smaller, online banks as opposed to brick-and-mortar institutions.
Therefore, savings rates have been steadily on the rise since the Fed began hiking interest rates last year. In fact, some of the top earning high-yield savings accounts, money market accounts and CD accounts are offering impressive rates — over 5% in some cases. You can use our new comparison tool — powered by Bankrate — to compare rates on high-yield savings accounts, as well as CDs, today.
Early in 2023, Bankrate predicted that rates would peak before leveling out, and after the January Fed meeting, this didn't happen — despite bank failures and slowing inflation. Although the Fed held rates steady, the Fed has indicated they were not ready to lower rates yet. We will have to wait for the next FOMC meeting in April to see if the Fed increases rates again.
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