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- When the Federal Reserve adjusts the federal funds rate, the decision affects savings account interest rates.
- In a November press conference, Federal Reserve Chair Jerome Powell said the Fed isn't discussing rate cuts.
While interest rates for savings accounts have steadily gone up throughout 2023, they unfortunately can't stay that way forever. Savings account rates are impacted by the Federal Reserve's decisions and can go up or down over time.
Here's what you can expect to happen to savings account rates after the next Federal Open Committee Market (FOMC) meeting on December 12 and 13.
Will savings rates drop after the next Fed meeting?
It's unlikely national savings rates will drop after the next Fed meeting. For savings rates to drop, the Fed would need to indicate that it is going to start cutting the federal funds rate.
Interest rate cuts are unlikely to happen soon, though. In a press conference in November, Federal Reserve Chair Jerome Powell said the Fed isn't thinking about interest rate cuts and is focused on bringing inflation down to 2% over time sustainably.
"In light of the uncertainties and risks, and how far we have come, the Committee is proceeding carefully. We will continue to make our decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation as well as the balance of risks," Powell also said during the press conference.
According to the CME FedWatch Tool, there's over a 95% chance that the Fed will keep rates the same at its December meeting.
"In the current environment, I expect savings account rates to remain steady over the next several months, pending further Fed action," says David Smith, professor of economics at Pepperdine Graziadio Business School.
What happens to savings rates when the Fed raises interest rates?
The Federal Reserve has raised the federal funds rate several times in 2023 to combat inflation, which is why savings rates have gone up overall.
According to the CME FedWatch Tool, there's less than a 5% chance the Federal Reserve will raise rates at its December meeting. It's still possible for a rate hike to occur in the future, though.
"It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so," said Powell in a fireside chat at Spelman College on December 1.
How high will savings rates go in 2024?
In early 2024, savings rates are generally expected to be similar to current savings rates.
The average savings account interest rate is 0.46% APY (Annual Percentage Yield). However, it's also important to point out that many online financial institutions have much higher savings rates than the national average. The best savings account interest rates pay well above 4% APY right now.
Once the Fed plans to start cutting rates, however, savings rates will likely begin to go down in 2024. Experts forecast different dates on when the Fed will start cutting interest rates.
Is now a good time to open a high-yield savings account?
It could be a good time to open a high-yield savings account if you want to open a new bank account for emergency savings or save for a short-term goal. High-yield savings accounts pay more interest than traditional savings accounts at brick-and-mortar banks.
Keep in mind high-yield savings accounts have a variable interest rate. This means the rate will fluctuate over time. If you're looking for a bank account that offers a fixed interest rate, the best CDs allow you to lock in a high rate for a specific timeframe.