When the Federal Reserve raised its key interest rate, it made many things more expensive. The interest rates you’d see on credit cards, car loans, adjustable mortgages and private student loans all likely went up as a result of the Fed’s move. That’s the bad news. The good news is that the interest rates on high-yield savings accounts also increased.
High-yield savings accounts offer higher interest rates than traditional savings accounts. As CNBC reports, the interest rates that these accounts offer are directly impacted by the Fed’s rate increases. This time last year, the average high-yield savings account had a 0.5 interest rate. Now the average interest rate for those accounts has increased to a little over two percent. Meanwhile, traditional savings accounts are currently at an average of .13 percent. There’s more good news too here: If the Fed raises rates again in the fall, high-yield interest rates will climb even higher.
The increase in savings rates means more money for you. Let’s say you have $5,000 in a high-yield savings account with two percent interest. If you deposit $100 per month for five years, you’d end up with $11,835. However, if you’re starting with that same $5K and saving the same amount in a typical savings account with .13 percent interest, you’d have just $11,052. That’s a big difference. Make sure you have your short term savings stashed in a high-yield account. You might as well take advantage of the Fed’s rate hike while you can.