During the week starting on October 23 and ending on October 27, the highest APY for high-yield savings accounts experienced an increase from 5.4% to 5.5%. Meanwhile, the highest APY for money market accounts decreased from 5.46% to 5.25%. Such variations in interest rates are often influenced by different economic factors, including the federal funds rate set by the Federal Reserve. We persistently analyze the current trends in account rates, juxtaposing them with the national average and forecasting future trajectories.
During the week spanning October 23 to October 27, we observed a slight uptick in the highest Annual Percentage Yield (APY) for high-yield savings accounts, moving from 5.4% to 5.5%. On the flip side, the highest APY for money market accounts experienced a decrease, dropping from 5.46% to 5.25%.
The interest rates on savings 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, with the Fed actively modifying interest rates due to economic indicators such as inflation, economic progression, and worldwide events, individuals saving might identify specific times more beneficial for accruing interest in their savings accounts. It’s important to note that interest rates for savings and money market accounts can vary depending on the bank’s provisions and the specifics of the account. While savings accounts usually have a set interest rate, money market accounts might offer marginally better rates but often come with higher minimum balance stipulations and restricted check-writing privileges.
|Type of account||Last week’s highest APY||This week’s highest APY||Change (percentage points)|
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 savings accounts?
The Fed’s interest rate policy affects the rates on savings accounts, as delineated below:
|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.|
National savings account interest rates.
- During the week starting on October 23 and ending on October 27, the highest APY for high-yield savings accounts increased from 5.4% to 5.5%, while the highest APY for money market accounts decreased from 5.46% to 5.25%.
- The Federal Reserve in 2023 adjusted its interest rates multiple times in response to economic indicators. By July, the cumulative adjustments brought the rate range from 5.25% to 5.50%.
- Cyrus Partow, Founder and CEO of ShipTheDeal, highlighted the correlation between economic indicators and weekly rates. He mentioned that financial stability often leads to banks offering lower rates, while uncertain times can drive rates upward.
- High interest rates can impact developers by increasing borrowing costs, potentially slowing down construction projects. This can lead to increased property prices or rents and might discourage potential buyers or investors.