High interest rates have a good result: Hiding some money finally pays off.
Rising inflation, which forced the Federal Reserve to raise its reference rate, has an effect on the return that savers can get on their money, at last.
Although the Fed has no direct influence on deposit rates, they tend to be correlated with changes in the target rate for federal funds. As a result, the savings branches of some of the largest retail banks have barely bottomed out since the Covid pandemic crisis began – currently only 0.08% on average.
With interest rates now rising, “things are starting to accelerate,” said Ken Tumin, founder of DepositAccounts.com.
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Last month, the average online savings office had its largest monthly increase since 201[ads1]7, according to his analysis.
Online banks such as Marcus by Goldman Sachs and Ally Bank offer higher returns, thanks in part to lower fixed expenses than traditional banks.
At Marcus, the average online savings office is currently around 1%, more than 12 times the price of a traditional, physical bank.
“If your dollars are not stretching that far, this is a great time to take a step back and look at your financial picture and be a little more strategic,” said Liz Ewing, CFO of Marcus.
As the US Federal Reserve continues its cycle of raising interest rates, these interest rates will also continue to rise, she added. “When the Fed makes a move, it will lead to changes in interest rates in the banking products customers use,” she said. “It seems like a no-brainer.”
Historically, an old-fashioned depository receipt was another way to lock in a slightly better return.
At present, annual CDs are on average 1.5%, and top-yielding CD rates pay over 2%, even better than a high-yield savings account.
The CDs that provide the highest return usually have higher minimum deposit requirements and require longer maturity periods.
But because the inflation rate is now higher than all these rates, all savings lose purchasing power over time.
Instead of locking in funds below the inflation rate, “is the best deal right now [series] In bonds, “Tumin said of finding an inflation-protected return.
These assets are backed by the federal government, making them virtually risk-free, and paying an annual interest rate of 9.62% through October, the highest return ever.
Even if there are purchase limits and you cannot lose money in at least one year, you will achieve a much better return than a savings account or a one-year CD.
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