If you’re lucky enough to have money for savings these days, you stand a chance of earning a record-breaking interest rate, whether it’s in a savings account, certificate of deposit, or other earning deposit account. interests.
The Federal Reserve has raised interest rates nine times in the past 13 months, sending consumer deposit rates skyrocketing. National rate averages are at their highest since the Federal Deposit Insurance Corporation (FDIC) began tracking rates in 2009.
If you shop around, you can do especially well, as today’s best high-yield savings accounts and certificates of deposits (CDs) pay 5% or better, with dozens of options even in the high 4% range.
Unfortunately, this party can’t last forever. The current forecast is that we will likely see just one more small hike from the Fed, possibly followed by a rate plateau and possibly even a decline later this year. If that happens, it means that we are or will soon be approaching maximum deposit rates, making now an excellent time to decide where to put your money away for maximum returns.
Key points
- Deposit rates have hit record highs due to the Federal Reserve’s rate hike campaign over the past 13 months.
- You can currently earn 5% or better from the highest paying savings accounts and certificates of deposit.
- If rates soon stabilize and eventually start to fall, it’s smart to decide now what you can manage to lock in at one of today’s premium rates.
Comparison of savings account and CD rates
Earning a good return on the money you have in the bank can be done with two broad categories of accounts. First, there are liquid accounts, which allow you to deposit and withdraw your funds more or less whenever you want. Think about savings, checking, and money market accounts.
The second are escrow accounts, more commonly called certificates of deposit (CDs), which involve an agreement between you and the bank: you agree to keep your funds on deposit without withdrawal for a set number of months or years, and the bank or the credit union agrees to pay you a fixed interest rate that is locked in for the term of the term. In general, CDs offer better rates than cash accounts, to compensate for giving up full access to money.
But how different are the rates between these options right now, and what’s a smart decision given the current interest rate environment? Rates have been rising for more than a year, driven by the Federal Reserve’s continued rate hikes. And that has led to record highs in interest rates for both savings accounts and CDs. Since you can now earn a very attractive 5% on the best high-yield savings account, that can make a stiffer CD less attractive.
But the rate environment is changing, and as a result, the annual percentage yield (APY) you can earn right now is only part of the consideration. Given that the federal funds rate is widely expected to top after just one more quarter-point hike on May 3, we’re likely seeing a current rate spike or soon on the horizon. Rates are expected to stabilize and eventually fall. Therefore, what do you think you can earn on your savings in the future it is also important.
If the rate cut forecast comes true, you’ll be much better served by a CD where your rate from today’s record highs is locked in, and probably the longer the better since it could be a while before that the Federal Reserve implements another rate hike.
What about Jumbo CDs?
If you have a deposit of at least $100,000 or more, you may want to consider a jumbo CD. However, Investopedia’s tracking of Best CD Rates shows that only occasionally do these certificates pay a better rate than the standard Best CD, so shop all options.
Decide whether to block it or keep it liquid
Comparing rates should certainly be part of your decision equation. Yes, now you can earn as much or more with a high yield savings account as on a 3 month CD or a 4 or 5 year certificate. And you can make nearly as much within about a quarter of a percent as you would under most other CD terms. On the flip side, if you put some of your savings away in a CD, you’ll do better down the road if the Fed lowers rates.
More critical to consider than all of this is what you can afford to part with now, and then live without for any length of time. Everyone’s financial situations are different and it may be that you don’t know if you will need your savings in the next year. Conversely, perhaps you’re saving up for a big purchase that you know is more than a year away. Or maybe you’re hiding money for the capital preservation of your retirement funds.
While no one can predict interest rates and the Fed’s moves predictably, all the signs currently point to an imminent falling rate environment, which means you’d do well to deposit as much of your savings in cash as you can. live without in a certificate to deposit. You can then leave a smaller amount in liquid savings, knowing that while the rate you earn will likely start to decline within a few months, you’ll maintain access to the funds should you need them.
| High Yield Savings Accounts | Certificates of Deposit | |
| Professionals | Withdraw or close at any time (although many banks impose a limit of six withdrawals per month) Prices nearly as good as CDs right now |
Higher rates than savings accounts usually The fixed rate for the life of the CD is great when rates are falling. Penalties for early withdrawal can counteract the temptation to spend |
| Against | Don’t earn as much as the highest paying CDs APY can drop at any time without notice. Easier withdrawals mean less protection against unplanned spending |
If you need the money sooner than expected, you will pay an early withdrawal fee. Most CDs won’t let you add anything else to the account The fixed rate could cost you in an escalating rate environment |
If you need to withdraw funds from a CD in advance, you Candiesbut it comes at a price. It’s called an early withdrawal penalty, and each bank or credit union has its own policy on how it’s calculated. Typically, you lose a number of months of interest, which can range from three months’ worth to years’ worth. Of course you should always look into the CD early withdrawal penalty policy you are considering before arriving at a final choice, so that other things being equal or close, you can choose the one with the least penalty.
Money market accounts and high-yield checking
In addition to high-yield savings accounts and CDs, many banks offer money market accounts, which are very similar to savings accounts but typically offer the added feature of allowing you to write checks. Traditionally, money market accounts offered higher interest rates than savings accounts, while requiring a higher minimum balance. But since the advent of online banking and the proliferation of high-yield savings accounts, savings rates are very competitive if not better than money market rates. Current money market rates are worth investigating, especially if you prefer to have check writing privileges.
Currently, the average money market rate is 0.57%, which is higher than the average savings rate (0.39%) but not as much as the average 3-month CD rate (0.78%).
Another option available at some banks and credit unions is a high-yield checking account, sometimes called a premium check. These accounts can pay a very competitive interest rate in exchange for meeting certain transactional requirements. This usually means you need to make a minimum number of debit card transactions. Hit your quota for the month and you’ll earn the high-yield rate. Lose it and you earn a nominal non-competitive rate.
For example, Consumers Credit Union’s Rewards Checking offers 5% APY on balances up to $10,000, but you’ll need to make at least 12 debit card transactions a month, deposit at least $500 a month via direct deposit, ACH, or mobile deposit, and spend $1,000 or more on the CCU Visa credit card.
When deposit rates were lower, high yield checking accounts offered a unique opportunity to earn a much higher rate if you were willing to jump through the required hoops. But now that savings account rates have risen, many high-yield check rates haven’t kept up. It’s possible that when the Fed’s rate starts to decline, savings account rates will drop rapidly, while high-yield checking accounts will hold their higher rates for a longer period.
Disclosure of the rate collection methodology
Every business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the highest-paying accounts. To qualify for our listings, the institution must be federally insured (FDIC for banks, NCUA for credit unions) and the minimum initial account deposit must not exceed $25,000.
Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (for example, you don’t live in a certain area or work in a certain type work), we exclude credit unions whose gift requirement is $40 or more. To learn more about how we choose the best rates, read our comprehensive methodology.
