On Wednesday, the Federal Reserve raised rates yet again. The short-term federal funds rate was raised by 25 basis points, or 0.25%, bringing it to a target range of 5.0%-5.25%. Since March 2022, the Federal Open Market Committee (FOMC) the central bank's rate-setting group, has been increasing interest rates in an attempt to combat inflation. They began with a quarter-point increase, followed by a 50 basis-point hike in May last year.
And while this marks the 10th consecutive rate increase, it's likely the last rate hike of the cycle. The central bank omitted prior language from its policy statement saying “some additional policy firming" may be warranted, which could mean that the FOMC could put a pause to raising rates at their next meeting.
If this is the case, rates on savings accounts may go up following this interest rate hike, but could taper off or decline if they're put on pause next month. 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.
Earlier this year, Bankrate predicted that rates would peak before leveling out, and after the latest Fed meeting it seems that’s likely what will happen - especially given recent bank failings and slowing inflation. If the Fed does indeed put a pause on hiking interest rates, savings rates will stop climbing, making now a good time to put your cash in a high yield savings account or lock-in rates on top earning CD accounts. However, we will have to wait for the next FOMC meeting in June to definitively know what happens to rates.
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