During the week starting on May 1st and ending on May 5th, there were no changes in savings account or money market account rates compared to the week prior.
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.
Since the Fed frequently modifies interest rates during periods of economic downturn, expansion, inflation, and prosperity, some periods may present more favorable conditions for earning interest on savings accounts than others. Keep reading to learn more about some of the highest-paying savings accounts, how they compare to the national average, and where you can open a savings account today.
Savings account rates compared to other accounts
|Type of account||Last week’s highest APY||This week’s highest APY||Change (percentage points)|
|High-yield savings||5.90%||5.90%||No change|
|Money market||5.02%||5.02%||No change|
The Federal Reserve raised the federal funds rate in mid-December 2022, marking its seventh increase of that year. After four consecutive hikes of 0.75%, the latest increase was smaller at 0.50%, due to signs of decreasing inflation.
This increase has led to significant growth in high-yield savings account interest rates. For example, though savings account rates were at a national average of 0.06% in March 2022, these same rates grew to 0.33% by January 2023. That’s an incredible jump for the national average, suggesting private institutions have increased as well.
Compare the national average with the highest available
How does the Federal Reserve change savings account rates?
Every six to eight weeks, the Federal Reserve’s rate-setting committee holds a two-day meeting to determine the future of the federal funds rate, which can increase, decrease, or remain unchanged.
The federal funds rate does not directly impact the interest rates offered by financial institutions for savings accounts. Rather, it is the rate at which institutions lend or borrow their excess reserves to each other overnight. However, a higher federal funds rate creates an incentive for institutions to seek deposits from consumers as a cheaper alternative, leading them to increase savings, money market, and CD rates.
In response to the pandemic, the Fed announced a 0% emergency rate cut in 2020, and the rate remained at that level for two years. In March 2022, the Fed began increasing the rate by 0.25%, with a second increase of 0.50% in May. This was followed by four larger hikes of 0.75% in June, July, September, and November.
The recent easing of inflation led to a more modest 0.50% increase at the December meeting. The Fed has indicated that there will be additional increases in 2023, though it is expected that these will be smaller quarter-point increases.
National average savings account interest rates
How are savings account rates expected to change?
The Fed’s five rate hikes in 2022 were just the start. The Fed may raise rates further to combat inflation, so we may see more hikes throughout 2023. Although the Fed rate doesn’t affect fixed interest rates for long-term debt like mortgages, it does impact short-term consumer debt and deposit rates. This means that savings account rates may continue to rise this year and next.
- For the week of May 1, 2023, savings account rates didn’t change compared to the week prior.
- Since mid-December 2022, savings account rates have remained relatively stable, with a gradual increase in rates from the Federal Reserve.
- The Federal Reserve plans to raise savings account rates further to combat inflation, with more hikes expected in 2023.
View Article Sources
- National Rates and Rate Caps – Previous Rates — Federal Deposit Insurance Corporation
- Credit Union and Bank Rates 2022 Q1 — National Credit Union Administration
- 8 Pros and Cons of Savings Accounts — SuperMoney
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- Are Checking Accounts and Savings Accounts Considered Assets? — SuperMoney
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- What Is a High-Yield Savings Account And How Does It Work? — SuperMoney
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