Chances are they will. Here’s why.
- Many savers earn minimal interest on their bank accounts.
- While we can’t expect rates to skyrocket overnight, they could climb this year.
There’s a reason why having a savings account is so important. You need a safe place to store money you’ve set aside for emergency expenses, such as home repairs or medical bills. And while it may be tempting to invest your emergency cash to grow it, you run the risk of losing the principal rather than preserving it as you’re supposed to.
That’s why a savings account is your best bet for your emergency savings and for other savings you plan to use soon, like money you stash for a down payment on a house. The problem with savings accounts, however, is that they only pay minimal interest. This has been particularly the case in recent years.
But bank account interest rates could spike in 2022 for a big reason.
Why interest rates could rise this year
The Federal Reserve plans to raise its federal funds rate this year after pausing rate hikes to allow for a post-pandemic recovery. Now, to be clear, when we talk about the Fed’s rate hike, we’re not talking about consumer interest rates like credit card rates, mortgage rates, and bank account rates.
The Fed is responsible for setting the short-term borrowing rates that banks charge among themselves. But his actions can influence consumer interest rates for both good and bad.
This year, mortgage rates could rise in response to Fed actions, which is not a good thing, as it will make borrowing for a home more expensive. But rising bank account interest rates are a good thing, because they help consumers earn more interest on their money.
Now, a substantial increase in bank account interest rates should not be expected. But is there a good chance that banks will start paying higher interest rates than consumers currently have access to? Absoutely. While a slight increase in interest won’t make a huge difference to your finances, you might as well make as much money out of your savings as possible.
How much money should you keep in the bank?
As a general rule, it’s a good idea to set aside enough money in a savings account to cover three to six months of essential bills. It’s your emergency fund.
If you’re saving for specific goals, like buying a house or a car in the short term, you’ll also want to keep the money you have available for that goal in savings, the amount of which will depend on the large purchase. you are targeting.
But if you have money that you don’t think you’ll need for five years or more, it’s worth investing that money in a brokerage account. You can stick with a traditional brokerage account or open an IRA, which has restrictions but offers tax benefits in exchange for your commitment to locking in that money until retirement.
Another thing you need to know is that when bank account interest rates go up, it’s not always obvious – just like banks don’t always send an alert when interest rates go down. So if you have money in savings, it pays to check your account details once a month or so to see what your interest rate looks like.
As the year progresses, you may find that your rate slowly increases. And if not, you might want to shop around and see if there’s a bank that pays more interest than yours is giving you.
These savings accounts are FDIC insured and can earn you 8 times your bank
Many people miss out on guaranteed returns because their money languishes in a big bank savings account earning almost no interest. Ascent’s picks of the best online savings accounts can earn you more than 8 times the national savings account average rate.