Savings Accounts Are Still Paying Record Rates. How Long Will They Last?

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High-Yield Savings Accounts Are Paying Their Best Rates in 20+ Years

Savings account rates closely follow the federal funds rate, the target interest rate set by the Federal Reserve. In an effort to combat decades-high inflation, the central bank rapidly raised the fed funds rate between March 2022 and July 2023, implementing 11 rate hikes for a cumulative increase of 5.25%.

This aggressive campaign pushed banks and credit unions to raise their savings, money market, and certificate of deposit rates to record levels. In fact, today’s top savings account rate of 5.50% APY is likely the highest we’ve seen since 2001, as that’s the last time the fed funds rate has been this high.

However, with the Fed’s last hike now more than six months behind us, and interest rates holding steady since then, savings account rates have ceased increasing. But they’ve stabilized at their record level—with the leading 5.50% nationwide rate consistently available since Dec. 6.

How Long Will Savings Accounts Pay This Much?

Since savings account rates are directly impacted by the Fed’s moves, predicting where the central bank goes with rates is key to guessing what will happen to savings account rates—and when it will happen. It’s also important to note that savings accounts pay a variable rate—which a bank can lower any day it wants, without advance warning. That means banks can quickly change their savings account rates in response to Fed moves.

So what are we expecting from the Fed? At the central bank’s Jan. 31 rate announcement, it signaled that its rate-hike campaign is almost certainly over. For now, however, it has opted to maintain the federal funds rate at its current level—the same decision it has made at the last four rate-setting meetings. This has kept the top savings account rates also holding steady over the last two months.

But Fed rate cuts are on the horizon. Back in December, the central bank released its quarterly “dot plot” report, which showed that almost 80% of the Fed committee members expect they will lower the federal funds rate two to four times in 2024. The median projection was three cuts totaling a 0.75% decrease.

But when those cuts arrive is a very open question right now. In his post-announcement press conference on Jan. 31, Federal Reserve Chair Jerome Powell indicated he doesn’t expect a rate cut to come as soon as the first quarter, saying, “I don’t think it’s likely the committee will reach a level of confidence by the time of the March meeting.”

Since then, newly released data could make it even harder for the Fed to pull the trigger on a first rate cut. With a strong January jobs report, plus a stubborn inflation reading yesterday, financial markets have now tempered their expectations of an initial rate cut even by the May 1 meeting. Instead, the first Fed meeting for which a majority of fed funds futures traders expect a rate cut is now pushed out to June 12, according to the CME Group’s FedWatch Tool.

What this means for savings accounts is that rates will likely hover in a holding pattern until it appears something will imminently change with the federal funds rate. A rate cut by the Fed won’t be a surprise when it comes—it will likely be forecasted weeks in advance. So banks may move to lower their rates in anticipation of an upcoming Fed rate decrease, rather than wait until the change is official. Still, until an upcoming rate cut appears clear, savings rates are expected to stay relatively stable.

A Smart Way to Hold Onto Today’s Record Rates

At some point, the Fed will begin to lower rates. And when it does, savings rates will follow. Though there is nothing you can do about the rate your bank will pay on your savings balance, you can make a move that will lock in one of today’s historically high rates for a longer period.

The strategy is to move some of your savings into a CD. Unlike the variability of savings account rates, a certificate of deposit rate is locked and guaranteed for the full term you choose. Though you can get CDs for terms as short as one month, putting savings into a longer-term CD allows you to secure the rates available today for years into the future.

Our daily ranking of the best CD rates offers dozens of options to earn in the mid 5% range on short- to mid-term CDs of 6 months to 3 years, and in the mid to upper 4% range on longer terms of 4 to 5 years. By locking into a top-paying CD today, you’ll earn that return until the CD’s maturity date— regardless of what the Federal Reserve does with interest rates.

Just be sure you only put funds into a CD that you can afford to live without for the full duration of the CD’s term, as you’ll be hit with an early withdrawal penalty if you cash out early.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.