Current Savings Account Rates May 2024
Last updated 08/07/2024 by
Benjamin Locke
Edited by
Andrew Latham
Summary:
As of early 2024, the Federal Reserve’s posture suggests maintaining higher interest rates longer than previously thought due to inflation concerns. This cautious approach is seen in the steady APYs of savings and money market accounts and aligns with the overall economic strategy of managing growth and inflation. From April to May, the highest APY savings account rates have stayed the same, whereas top rates for money market accounts dropped.
From April to May 2024, the highest available savings account rate remained steady at 6.17% APY, while the top money market account rate dropped to 5.30% APY. The average savings account rates across the nation hovered around 0.5%. This adjustment occurs amid economic indicators suggesting a cautious yet firm approach from the Federal Reserve, with recent reports from Reuters and CNN indicating that interest rate cuts may not happen until at least September, contrary to earlier expectations. With persistent inflationary pressures, a robust labor market, and moderate economic growth, the Federal Reserve is likely to continue its vigilant approach.
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So, what’s up with the Fed lately?
Federal Reserve officials, during their meeting ending on May 1, expressed a consensus to maintain higher interest rates for a longer period, questioning whether the current policy is sufficiently restrictive to achieve their inflation target. The minutes from this meeting revealed a willingness among various officials to tighten policy further if necessary, citing disappointing inflation readings in the first quarter. The officials discussed the possibility of keeping rates steady longer if inflation does not move sustainably toward the 2% target or reducing policy restraint if the labor market weakens unexpectedly. Chair Jerome Powell emphasized the need for patience, indicating that the current restrictive policy would eventually bring inflation down to the desired level.
Since the meeting, April consumer price data showed a modest cooling in inflation, easing some concerns about reacceleration. Despite this, the labor market showed signs of cooling with slower hiring rates. Fed officials are now considering the impact of high interest rates, with discussions about the long-run neutral rate, which may be higher than previously thought. Governor Christopher Waller welcomed the improved inflation data but stressed the need for more consistent reports before considering rate cuts. Market expectations reflect potential rate cuts later this year, although some, like Goldman Sachs CEO David Solomon, predict no cuts in 2024. The Fed also decided to slow the pace of reducing its asset portfolio, with most officials supporting a new cap on Treasury runoff starting in June.
| Type of Account | April Highest APY | May Highest APY | Change (Percentage Points) |
|---|---|---|---|
| High-yield Savings | 6.17% | 6.17% | No Change |
| Money Market | 5.48% | 5.30% | -0.18% |
Fed’s activity in 2023 & 2024
At its second gathering of 2024, which was held on March 19 and 20, the Federal Reserve failed to adjust interest rates just like it did in its session of 2024 in January. 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%, the highest it’s been in over 20 years.
| 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 savings accounts?
The Fed’s interest rate policy affects the rates on savings accounts, as delineated below:
| Aspect | Description |
|---|---|
| Direct Correlation | Savings 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 savings 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 savings 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 savings accounts. |
| Attracting Deposits | After the Federal Reserve raises its rate, financial institutions often increase the interest they offer on high-yield savings accounts. This is done to stay competitive and attract deposits. Banks want to encourage people to deposit money, and offering higher interest 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 savings account rates but also APRs and APYs on various financial products. |
Pro Tip
“With continual low-interest rates, banks seem to be enhancing the appeal of their saving accounts by integrating perks such as waived fees or reward points, similar to how we bundle insurance services to offer more value. These strategies aim to retain customer loyalty and investment, crucial in a competitive market. “ – John Crist, founder Prestizia Insurance
National savings account interest rates
Key takeaways
- Interest rates for top high-yield savings accounts have remained static at 6.17% APY where as from April to May 2024, money mart accounts dropped .18%.
- The Federal Reserve is indicating interest rates will stay higher for longer, a change driven by persistent inflation.
- Wall Street’s forecast for interest rate cuts has significantly reduced from six to just two, with expectations set for September at the earliest.
- The Federal Reserve’s current rate policy, holding steady at 5.3%, reflects a broader effort to stabilize the economy amidst growth and ongoing inflationary pressures.
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