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 been increasing interest rates in an attempt to combat inflation.
Although rates remained steady this time, the Fed has raised rates 11 times since March 2022, and more rate hikes are still on the table. The central bank reiterated prior language from its policy statement saying “the Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals," which could mean that the FOMC could be raising rates at their next meeting.
Rates on savings accounts may taper off or decline due to the pause in raising the Fed funds rate. If the central bank changes course and raises rates at the next meeting, savings rates would likely go up. 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 July Fed meeting it seemed that less than likely to happen — despite bank failings and slowing inflation. Although the Fed held rates steady, the Fed has indicated they were still open to hiking rates this year. We will have to wait for the next FOMC meeting in November to see if the Fed increases rates again.
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