How the Fed’s latest rate increase will affect your bank savings

Editor’s note: (This is an excerpt from a story that originally ran on March 22, 2023. )

New York (CNN) After some surprise bank failures and moves by US regulators to boost confidence in the financial system, banking came first for many people.

But the Federal Reserve’s decision on Wednesday to raise interest rates for the ninth time since March last year brought welcome news for savers seeking higher returns on their money.

“Returns on savings accounts and CDs are the best in 15 years,” said Greg McBride, chief financial analyst at Bankrate.com.

Significantly higher interest rates, just not at the largest banks

Higher interest rates mean your most liquid savings — those for emergency expenses or short-term goals like vacation fund or even a down payment you need in the next 12 months — can finally make some money for you after years of making practically nothing. Unless you still keep your money with the biggest banks. They offer the lowest interest rates for savings.

But high-yield online savings accounts are now offering interest rates of up to 5%, which is well above the national savings account average of 0.23%, according to Bankrate.

“You leave a lot of money on the table if you don’t go to an online bank,” McBride said.

Just make sure you choose an FDIC-insured one so you can rest easy knowing your deposits are protected for up to $250,000 should the bank get in trouble.

Among the top-yielding certificates of deposit are some federally insured one-year CDs with yields of up to 5.15%, well above the current national average of 1.62%.

So look around.

Another high-yield savings option

With inflation rates still high today – currently at 6% – Series I savings bonds could be attractive because they are designed to preserve the purchasing power of your money. You can still get the current 6.89% interest rate on the I Bond if you buy it before the end of April.

This rate will remain in effect for six months after you complete your purchase before resetting on May 1st. When inflation goes down, the interest rate on the I-Bond goes down as well.

There are some restrictions: You can only invest a maximum of $10,000 per year. You cannot repay your bond in the first year. And if you pay out between the second and fifth year, the interest from the last three months will be forfeited.

“In other words, I Bonds are not a substitute for your savings account,” McBride said.

Even so, they preserve the purchasing power of your $10,000 if you don’t have to touch them for at least five years. They can also be of particular benefit to individuals planning to retire in the next five to 10 years, as they serve as a safe annual investment to fall back on if needed during the early years of retirement.