The Federal Reserve’s next move is on the horizon. On May 3, the FOMC, or Federal Open Market Committee, will announce whether or not the federal funds rate will increase again. The Fed has raised its federal funds rate range nine times since March 2022 in an effort to tame runaway inflation.
Wednesday’s meeting will determine if the cost of borrowing — for everything from mortgages to credit cards — will go up again, making it more expensive to finance a loan or carry a balance on your credit card. But savers are still benefiting from higher annual percentage yields or APYs on CDs and high-yield savings.
Regardless if the Fed issues another rate hike, inflation is starting to slow. Though we’re not quite at the Fed’s inflation target of 2%, experts aren’t expecting savings and CD rates to change much, no matter what the Fed decides.
“Banks have already started to lower CD and savings rates with the expectation that we will be in a lower interest rate environment in the future,” said Chelsea Ransom-Cooper, managing partner and financial planning director at Zenith Wealth Partners.
So where should you put your savings if some rates are slowly dropping? Is a high-yield savings account still worthwhile? What about preparing for a recession? We’ll answer all these questions and cover the best CD and savings rates right now.
Average CD rates this week
Over the past few weeks, we haven’t seen big swings in CD rates.
The average CD rates tracked by CNET increased slightly for each CD term this week, but not by much. This week, six-month CD rates increased by 0.02%, while one-year CDs increased to 4.80%, with some banks over 5%. Meanwhile, three- and five-year CD rates remain lower than shorter terms. Here’s a closer look at how much rates have changed in a week.
CD rates tracked by CNET
Despite rates only increasing slightly this week, most banks are well above the average rates tracked by the Federal Deposit Insurance Corporation. The FDIC averages include rates from traditional banks, which tend to have lower CD rates. While banks with physical branches can be convenient, we recommend considering an FDIC-insured online bank to get a better annual percentage yield or APY on your savings — as long as you’re comfortable managing your money online or via an app.
Average CD rates
Rates as of May 1, 2023.
The best savings rates this week
This week, the average savings rate as tracked by CNET is 4.38%. Most banks have APYs around 4%, but many are well over that mark, with some inching closer to 5%. Ahead of the Fed meeting, some banks are still raising rates — including Bask Bank and Bread Savings. Others are keeping rates the same for now.
The best savings rates this week
|SoFi||Up to 4.20%|
Rates as of May 1, 2023.
Savings rates are reaching a peak
Over the past several weeks, only a few banks have increased rates for CDs and savings accounts — but not by much. After this week’s Fed meeting, there’s a strong possibility that rates won’t go much higher for deposit accounts. If the Fed raises rates, experts believe it will be the last rate hike for a while, since inflation is cooling. As a result, we may see small jumps in savings and CD rates for banks to remain competitive, but most rates will remain the same.
On the CD side, whether rates go up or remain the same, experts say it will be time to lock in a long-term CD before rates drop. As for high-yield savings accounts, we shouldn’t expect rates to increase much, either.
“It’s difficult to predict exactly how much higher high-yield savings rates will go by summer,” said Michael Ryan, a retired financial planner and founder of Michael Ryan Money. “It depends on a number of factors like inflation, economic growth and interest rate policy. There has been a trend of increasing rates, so it’s likely they will continue to rise at least somewhat.”
There’s a chance that high-yield savings may increase by another 0.25% to 0.50% by this summer, said Jordan Hucht, a certified financial planner and partner at Vision Wealth Partners. “Keep in mind that savings rates can go the other way, too. And if the economy has a downturn, it’s likely that rates would also come down.”
What happens when savings rates plateau?
As inflation cools, experts are still predicting a recession in 2023 or 2024. While a recession can be scary because it’s typically marked by a period of economic decline, increased layoffs and a higher unemployment rate, it’s also a recurring part of the economy’s ebb and flow. And the best way to get ahead of a recession is to prepare for the unexpected.
As rates begin to plateau and slightly dip for some banks, if you have savings, it’s time to start thinking about where to move your money next. Right now, there’s still time to take advantage of high APYs on interest-earning deposit accounts, like savings, CDs and money market accounts.
Keep in mind that high-yield savings and money market accounts have variable rates. But just because savings rates won’t jump to record highs like last year, it doesn’t mean you need to move your money. As rates remain stagnant (or slightly dip for some banks), you may not earn the best return, but you want to keep emergency and short-term funds accessible. “Savings accounts are great tools for holding cash for emergencies and shorter-term needs, but they are not great tools for achieving real returns,” said Hucht.
Where to park your savings
Even though rate hikes may be ending, it’s still important to save — now more than ever.
The first priority should be saving money you’ll need soon in a high-yield savings account. “Emergency savings should be kept in an FDIC-insured bank account that is liquid and can be withdrawn penalty-free at any time,” said Hucht.
If you already have a fully stocked emergency fund, you can take advantage of the high savings rates that are still around by diversifying your wallet. For instance, you may keep money in a high-yield savings account or money market account to keep some funds flexible. You can also add a short-term CD or Treasury bond to lock away money in exchange for a slightly higher interest rate.
“They are all fairly liquid options just in case you end up needing access to the money,” said Tatiana Tsoir, a certified public accountant and author of Dream Bold, Start Smart. Just be aware of any minimum balance requirements and withdrawal penalties if you need to pull out funds.
Equities tend to provide bigger returns if you have a longer horizon for the funds you won’t need in 10 years. “For most investors, low-cost stock index funds are a simple, effective way to reap the benefits of market growth over time,” said Hucht. You may also consider investing in the stock market, depending on your goals, added Ryan.
What is a good CD rate right now?
The best CD rate you can get depends on the term and type of CD you want. Most CDs are above 4% now, so shopping around for the best rate is best. Some shorter-term CDs of one-year or shorter have better rates than longer terms.
For example, based on CNET’s weekly CD tracking, the average one-year CD has a 4.80% APY, slightly higher than the average five-year APY of 4.03%.
Are savings account interest rates fixed?
No, high-yield savings accounts do not have a fixed interest rate. Instead, the variable rate tends to move alongside the Fed’s moves — depending on the bank. So, the bank may raise or lower interest rates, making it much more unpredictable to know how much interest you’ll earn over time. However, while CD rates also increase and decrease with the market, you can lock in a fixed-rate for a set term, making them a good option if you want to earn a predictable, high return on your money.
Should I have more than one savings account?
There’s nothing wrong with having more than one savings account. You may have several accounts to stash savings, depending on your goals. For example, you may have one for your emergency savings and another for a sinking fund to cover an upcoming vacation. However, some banks, like Ally, have buckets that allow you to separate your savings in the same account based on your goals.
If you choose to have more than one savings account, make sure you’re keeping an eye on any fees, minimum balance or deposit required to keep the account in good standing.