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The Federal Reserve has implemented aggressive tactics to combat rising inflation and stabilize the economy this year. Namely, it has raised rates to increase borrowing costs and slow consumption. Since March 2022, the effective federal funds rate has risen 5.00%—the steepest leap in recent history.
You might wonder what savings rates will look like in 2024. Let’s take a closer look. Account details and annual percentage yields (APYs) are accurate as of April 16, 2024. Account availability and APYs may vary based on location.
Will Savings Rates Keep Going Up in 2024?
Savings rates have been rapidly climbing for the past couple of years. Here’s an overview of the national average savings interest rates starting in January of 2022, according to the Federal Deposit Insurance Corporation (FDIC):
Since the beginning of 2022, the national savings interest rate has increased nearly eightfold—from 0.06% to 0.47%. However, savings rates have recently stabilized, and they may start falling at some point in 2024 if the Federal Reserve decides to cut interest rates.
The Fed is extremely data-dependent, and we need to continue to see improvements in inflation, labor and GDP data to get a rate cut in March 2024. However, if a rate cut happens in the next few months, you could expect saving rates to drop as well. Consider securing a long-term CD before then to lock in your best rate of return with as low of a risk as possible.
– Christopher M. Naghibi, Executive Vice President and Chief Operating Officer at First Foundation Bank
The Federal Funds Rate
The federal funds rate is the interest rate at which depository institutions—such as banks and credit unions—lend reserve balances to other depository institutions overnight. It’s one of the most important financial policies set by the Federal Open Market Committee (FOMC) and serves as a benchmark for interest rates across the economy.
Changes to the federal funds rate can have a far-reaching impact on consumer borrowing costs. As the Fed increases the federal funds rate, interest rates on credit cards, mortgages and auto loans typically rise accordingly. This higher cost of borrowing decreases the overall demand for goods and services and, in turn, slows the inflationary pressure on prices.
Though 2023’s skyrocketing interest rates might have been a difficult pill to swallow for consumers seeking home improvement loans or auto loans, there was a silver lining—savings rates rose steadily throughout the year as well.
Savings National Rate Cap
Before predicting the savings rates in 2024, we must consider the savings national rate cap.
On Dec. 15, 2020, the FDIC’s Board of Directors imposed the savings national rate cap to limit less-than-well-capitalized institutions from offering rates far exceeding the national rate. With this restriction in place, riskier institutions can’t offer sky-high savings interest rates to attract new customers.
Keep in mind that though this rate cap only applies to institutions that the FDIC deems as “less-than-well-capitalized,” it still helps control the overall rise in interest rates on U.S. savings accounts since these institutions can’t bid up the rates.
For nonmaturity deposits, such as savings accounts, the national rate cap is calculated as the national rate plus 75 basis points or the federal funds rate plus 75 basis points—whichever is higher.
As of January 18, 2023, the savings national rate cap was 6.08%, whereas the average rate on savings accounts was only 0.47% APY. However, unlike traditional financial institutions, online banks typically offer high-yield savings accounts with rates around 5.00%—much closer to the national rate cap.
How High Will Savings Rates Go?
How high savings rates will go in 2024 depends on whether inflation continues to rise and how aggressively the Fed acts in response. Since July 2023, the federal funds rate has remained steady at a range between 5.25% and 5.50%. Fed chairman Jerome Powell has suggested that rates will eventually decline sometime in 2024.
According to the Summary of Economic Projections, the Fed may implement at least three 25-basis point interest rate cuts in 2024—bringing the federal funds rate closer to 4.60%. Once this happens, it won’t be surprising to see banks following suit and decreasing their savings account rates. But for now, the best high-yield savings accounts still offer savings rates near or above 5.00%.
| Expert Advice: Don’t Wait To Lock In a High-Yield CD | ||||
|---|---|---|---|---|
| Michael Hershfield - Founder and CEO of Accrue Savings | The Fed's aggressive tactics, including multiple interest rate hikes, have been aimed at reining in inflationary pressures. However, as we move forward, it's becoming increasingly clear that the pace of rate hikes may slow down, with potential rate cuts on the horizon.   Securing a long-term CD before potential rate cuts can be a prudent move to lock in favorable rates. Additionally, exploring high-yield savings options provided by fintech companies and digital banks can offer competitive rates that outperform traditional brick-and-mortar banks. | |||
Savings Rates Forecasts 2022-23
According to Forbes Advisor’s list of the best online savings accounts, the average APY of the top four highest-yielding savings accounts in December 2022 was 3.28% APY—almost half of the most recent national rate cap. With the federal funds rate up to 5.25% and 5.50% throughout the latter half of 2023, the best savings rates approached 6.00% APY.
Heading into 2024, the Federal Reserve decided to maintain the target range for the federal funds rate at 5.25% to 5.50% and indicated that it may lower rates in the near future. Despite this prediction, you could still find high-yield savings accounts offering interest rates as high as 5.50% APY by the end of 2023.
How To Get the Best Savings Rate
If you’re seeking maximum savings rates, you might want to look into high-yield savings accounts offered by fintech companies and digital banks.
Online banks don’t have the substantial overhead costs of traditional brick-and-mortar banks, so they can generally offer more competitive interest rates. Additionally, smaller online banking institutions may be more likely to offer enticing interest rates to attract customers as they don’t have marketing budgets as large as those at bigger banks.
If you’re interested in online banks, an option worth considering is Bread Savings. Bread Savings High-Yield Savings Account is an online-only bank that offers high-yield savings accounts that earn5.15% APY—more than 14 times the current national average rate on savings accounts.
Find The Best High-Yield Savings Accounts Of 2024
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Frequently Asked Questions (FAQs)
What is the average interest rate on a savings account?
As of April 2024, the national average interest rate on a savings account was 0.46%, according to FDIC data. However, the best online savings accounts offer rates near or above 5.00% APY.
How does the interest rate affect money earned in a savings account?
Your savings account interest rate indicates how much interest you can earn expressed as a percentage of your savings account balance. Let’s say you deposit $1,000 in a savings account offering an annual interest rate of 3.00%. If you leave that amount in your account without touching it, you’ll have $1,030 by the end of one year. Depending on the account, interest can compound daily, monthly, quarterly or annually, and the more frequently it compounds, the more interest you’ll earn. Use our savings interest calculator to determine how much your savings could grow.
How do banks set interest rates on savings accounts?
Each bank determines its own interest rates on savings accounts, which are often loosely guided by adjustments in the federal funds rate. Some banks may set their rates far above average to attract customers, while others may set rates well below average.
Why Are Savings Rates Down?
Rates aren’t going down right now, but they are still much lower than 40 years ago. The last time the U.S. faced inflation as high as it is now was in the early 1980s. During that time, the Fed jacked the interest rates to above 19% to restore price stability. But the Fed’s efforts to throttle inflation tipped the economy into a recession.
Today’s savings rates are down compared to four decades ago because as the economy began improving in the mid-1980s, the federal funds rate stabilized and hasn’t risen above 10% again.
