Federal Reserve Rate Hikes Are Likely to Continue in 2023. Here’s What That Could Mean for Your Savings

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

It’s actually good news. 

It’s hardly a secret that inflation has been hurting consumers for well over a year. And at this point, a lot of people have racked up credit card debt simply to do things like put food on the table.

The Federal Reserve wants to put an end to rampant inflation. And so last year, it raised interest rates seven times to achieve that goal.

But we’re not done with soaring inflation. In February, the Consumer Price Index was up 6% on an annual basis. Meanwhile, the Fed has made it clear that its goal is to bring inflation down to the 2% mark, which it considers a healthy level that lends to economic stability. And so we’re likely to see more interest rate hikes this year until the pace of inflation cools further.

That may not be the best news from a borrowing perspective. But it’s great news for people with money in savings accounts.

Savers could gain even more

It’s become very expensive to borrow in the form of auto loans, personal loans, and just about any type of loan following the Fed’s rate hikes in 2022. And we’re probably going to see more of those hikes this year.

The purpose of rate hikes is to discourage consumers from spending to some degree. Once that happens, it can close the gap between supply and demand that causes inflation to surge.

But while rate hikes aren’t good for borrowers, they’re terrific for savers. In the wake of last year’s rate hikes, banks have started offering much more attractive savings account and CD rates. And so now, consumers who keep money in the bank are earning more interest than they were a year ago. If more rate hikes happen this year, savers could come out ahead financially even more.

Will the Fed slow down on rate hikes?

Inflation has cooled quite a bit since peaking in mid-2022, so in the coming months, the Fed may not implement the same sort of aggressive interest rate hikes it did last year. Rather, we could be in line for modest rate hikes — though only time will tell.

But either way, consumers should expect the cost of borrowing to continue to rise. The silver lining is that those with money in savings could benefit financially.

Higher savings account rates could also make it easier for consumers to cope with inflation. That’s because their interest earnings might be substantial enough to cover some of their bills while they wait for living costs to come down.

How to eke out the best savings account rate

One big misconception about the Federal Reserve is that it tells individual banks what amount of interest to pay. Rather, the Fed oversees the federal funds rate, which is the rate banks charge each other to borrow money on a short-term basis.

Because banks set their own interest rates, consumers who want to score the highest rates should do their research and shop around. This applies to savings account rates as well as CD rates.

Within the realm of CDs, it’s also important to look at different terms. It may be that one bank has the best rate for a 12-month CD while another has the best rate for a 6-month CD. These are the sort of details savers should look at carefully.

These savings accounts are FDIC insured and could earn you 13x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 13x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More