During the week starting on October 16th and ending on October 20th, there were no changes in checking account rates compared to the week prior. The interest rates on checking accounts fluctuate, often influenced by the federal funds rate set by the Federal Reserve. We also delve into the current state of checking account rates, their comparison to the national average, and expectations for the future.
The interest rates on checking accounts tend to vary over time, generally following the fluctuations of the federal funds rate. This rate is determined by the Federal Reserve and impacts the cost of overnight borrowing and lending among banks. In 2023, as the Fed continues to adjust interest rates in response to economic conditions, including factors like inflation, economic growth, and global events, account holders might find certain periods more advantageous for earning interest on their checking accounts.
|Type of account||Last week’s highest APY||This week’s highest APY||Change (percentage points)|
|High-yield checking||5.07%||5.07%||No Change|
Federal Reserve Update
Fed’s activity in 2023
In 2023, the Federal Reserve took decisive action in response to the evolving economic landscape by adjusting its interest rates multiple times. These hikes were part of the Fed’s strategy to manage inflationary pressures and stabilize the economy. Starting in February, the central bank initiated a series of rate increases, signaling its intent to ensure sustainable economic growth. By July, the cumulative adjustments brought the rate range from 5.25% to 5.50%. These moves reflected the Federal Reserve’s commitment to maintaining monetary stability and its proactive approach to addressing economic challenges.
|Date||Rate Increase (basis points)||New Rate Range|
|February 1, 2023||25||4.50% – 4.75%|
|March 22, 2023||25||4.75% to 5.00%|
|May 3, 2023||25||5.00% to 5.25%|
|July 26, 2023||25||5.25% to 5.50%|
How does the Fed change affect the interest on checking accounts?
The Fed’s interest rate policy affects the rates on checking accounts, as delineated below:
|Direct Correlation||Checking account interest rates are generally correlated to the federal funds rate. This means that if the Federal Reserve increases its interest rate, the interest rates on checking accounts are likely to increase as well, and vice versa.|
|Lag in Response||While there’s a correlation between the Federal Reserve’s rate and checking account rates, the latter might not immediately adjust in response to changes made by the Federal Reserve. In other words, even if the Fed raises its rates, it might take some time before banks adjust the rates they offer on checking accounts.|
|Attracting Deposits||After the Federal Reserve raises its rate, financial institutions might adjust the interest they offer on interest-bearing checking accounts. This is done to stay competitive and attract deposits. Banks want to encourage people to use their checking services, and offering competitive rates can be an effective way to do so.|
|Overall Financial Ecosystem Impact||The Federal Reserve’s decision to raise or lower interest rates affects the entire financial ecosystem. This includes not just checking account rates but also APRs and APYs on various financial products.|
- During the week starting on October 16th and ending on October 20th, there were no changes in the highest APY for high-yield checking accounts, remaining at 5.07%.
- Federal Reserve Chair Jerome Powell’s recent comments had significant implications on the U.S. bond yields, which rose to a 16-year high above 5% for the first time since 2007. This is attributed to the hawkish stance of the Federal Reserve’s policy, emphasizing concerns about inflation and potential for below-trend growth.
- In 2023, the Federal Reserve adjusted its interest rates multiple times in response to the evolving economic landscape. By July, the cumulative adjustments brought the rate range from 5.25% to 5.50%.
- The Federal Reserve’s interest rate policy directly affects checking account rates. There’s a correlation between the Federal Reserve’s rate and checking account rates, but the latter might not immediately adjust in response. After the Federal Reserve raises its rate, banks might adjust their rates on interest-bearing checking accounts to stay competitive and attract deposits.