The Federal Open Market Committee increased the target range for the federal funds rate by 25 basis points, to 5.25% to 5.50%, on July 26, marking the 11th increase since March 2022 and bringing the rate to its highest level since 2001. The FOMC left that target in place in its Sept. 20 meeting, but Federal Reserve Chair Jerome Powell left open the possibility of more hikes if necessary to bring inflation to 2%. In its quarterly “dot plot,” or rate forecast, Fed officials’ median rate projection for the end of 2023 is 5.6%.
Why Are Rates Increasing?
The Federal Reserve has been implementing increases in the federal funds rate. The federal funds rate is the rate banks charge to lend each other money overnight, and banks use it as a benchmark to set other rates, including the yields they pay on savings accounts and certificates of deposit. While the rates don’t move in lockstep, they do tend to move in the same direction, with bank yields increasing when the federal funds rate goes up and decreasing when the federal funds rate goes down.
The Fed began increasing the federal funds rate in March 2022 in an effort to control runaway inflation resulting from the pandemic. Rate increases discourage borrowing and spending, which slows down the economy and helps to rein in consumer prices. So far, it seems to be working. The inflation rate was 8.5% in March 2022. The rate was 3.7% in August 2023. While a vast improvement, the August rate is still 1.7% higher than the Fed’s target average inflation rate of 2%.
Will Savings Interest Rates Keep Going Up in 2023?
The Fed made it clear that it is open to additional hikes if needed but will base its decision on “a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” as noted in a Sept. 20 press release.
Analysts’ reactions are somewhat divided. Some take the Fed at its word that it will watch the data with an open mind. Others interpret the forecast as a “communications strategy,” as Karl Schamotta, chief market strategist at Corpay, termed it in comments reported by Reuters.
Michael Pearce, lead U.S. economist at Oxford Economics, told NPR, “It’s a no-brainer for the Fed to remain sounding hawkish at this meeting. They want to keep the optionality of additional hikes if they need to.”
Regarding the Fed’s rate forecast for rates to drop next year, Pearce said, “It feels like there’s a higher bar for raising rates, but also a higher bar for cutting rates as well. It just feels like the committee is setting themselves up for a prolonged pause, and just waiting see where the next few months of data will take us.”
Rates implemented thus far have made high-yield savings accounts and CDs good places to earn risk-free returns for the year ahead. While you won’t find 7% rates, a number of well-known banks are offering 4% or more.
Best Accounts With High Interest Rates
It’s important to put your money in the right place when savings rates are high. Here are five of the best accounts with high-yield rates for earning more from your savings.
| Bank | Savings Account and APY | 1-Year CD Rate |
|---|---|---|
| Ally | Online Savings Account — | |
| Capital One | 360 Performance Savings — | |
| Discover | Online Savings Account — | |
| Synchrony Bank | High Yield Savings — | |
| SoFi | Checking and Savings Account — | N/A |
What Makes a Good Savings Account in 2023?
Consumers should look for a bank that has increased savings rates as the interest rates go up. These banks are likely to continue to offer high rates to entice new and existing customers. For anyone considering switching banks for better savings account rates, consider:
- The amount of cash to which the savings rate applies
- Monthly fees after opening an account
- Any sign-up bonus offers
- Minimum balance requirements
US Interest Rates in 2023
Until March 16, 2022, the federal funds rate, now at 5.25%-5.50%, was just 0.00% to 0.25%. A total of 11 rate hikes have occurred since then.
| Date | Rate Increase |
|---|---|
| July 2023 | 5.25% – 5.50% |
| May 2023 | 5.00% – 5.25% |
| March 2023 | 4.75% – 5.00% |
| February 2023 | 4.50% – 4.75% |
| December 2022 | 4.25% – 4.50% |
| November 2022 | 3.75% – 4.00% |
| September 2022 | 3.00% – 3.25% |
| July 2022 | 2.25% – 2.50% |
| June 2022 | 1.50% – 1.75% |
| May 2022 | 0.75% – 1.00% |
| March 2022 | 0.25% – 0.50% |
The last time interest rates were increased this much was back in 1980, when rates touched 20% — a historic all-time high.
Final Take
With high-interest savings accounts offering yields of more than 4% or more at some banks, it’s a great way for people to earn a return on their cash. Consumers may want to compare banks for the best savings rates for 2023 to maximize their returns.
FAQ
Here are some commonly asked questions about savings rates.- Did savings rates go up in 2022?
- Yes. In 2022, some of the best high-yield savings accounts went from offering rates of 1.00% to offering rates well above 3.00%.
- Which bank gives a 7.00% interest rate on savings accounts?
- There aren’t any banks in the U.S. currently offering 7.00% interest on savings. Several banks are offering high-yield savings accounts and CDs with rates of over 4.00%, however.
- Who benefits from rising interest rates?
- Consumers benefit from rising interest rates because they can make better returns from their savings. Financial services companies also benefit as their profit margins expand.
- What is the national average savings account rate in the U.S.?
- According to the Federal Deposit Insurance Corp., the national average savings account rate is 0.45% as of Sept. 18.
More on Savings Accounts
- What a Fed Rate Increase Means for Savings Accounts
- How Much Should I Have in Savings?
- What Is a High-Yield Savings Account?
More on Interest Rates
- Best Savings Account Interest Rates
- What’s the Average Interest Rate for Savings Accounts?
David Granahan and Cynthia Measom contributed to the reporting for this article.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Sept. 21, 2023.