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The interest rate environment of the last few years has been less than ideal. Thanks to the highest inflation rate in decades and correspondingly high interest rates designed to tame it, Americans have felt economic pain seemingly everywhere from the grocery store to their mortgage payments. Rates on mortgages, personal loans and credit cards have all surged in the last two years, leaving borrowers with limited options.
But the elevated rate climate has had some winners, too. Those who opened high-yield savings and certificates of deposit (CD) accounts in the last two years have been rewarded with significant returns. That said, inflation has cooled significantly since June 2022 and rate cut speculation is high right now. In this environment is a high-yield savings account still worth it, even with inflation dropping? For many, it may still be. Below, we'll break down three reasons why.
See how much more you could be earning with a high-yield savings account here now.
Why high-yield savings accounts are still worth it now
Here are three notable reasons why high-yield savings accounts are still valuable now, even with inflation on the downward slope.
Rates are still high
Sure, rates on high-yield savings accounts may soon come down but they're still high now. It's not difficult to find a high-yield savings account with a rate of 5% or better right now, clearly outpacing today's 3.1% inflation rate. That said, rates on these accounts are variable and subject to change daily so it benefits savers to shop around to find an account with high rates and minimal or no fees. That may require the use of an online bank, most of whom can offer significantly higher rates than banks with physical branches can.
Start shopping for a high-yield savings account online today.
But rates may drop soon
As mentioned, rates on these accounts are variable so they will change over time. And the long-term forecast for high-yield savings account rates is murky, with many expecting them to fall when the Federal Reserve issues its first rate cut of 2024. That could be as soon as May or June, meaning that the window of opportunity to maximize your returns with this type of account is closing.
Before inflation is fully under control, then — and before the Fed feels confident enough to start issuing cuts — savers should do what they can to earn as high a rate as they can. A high-yield savings account can help accomplish that goal.
The alternatives aren't as beneficial
While high-yield savings accounts have some caveats to account for they're still arguably better than some popular alternatives. Traditional savings accounts come with a minimal 0.46% interest rate right now, meaning you're losing money by keeping your funds untouched in one of those accounts.
CDs, meanwhile, offer rates comparable to high-yield savings accounts but savers will need to leave their money in the account for a full CD termto earn that interest — or risk an early withdrawal penalty by acting prematurely. Compared to these alternatives, then, it makes sense to pursue a high-yield savings account now, even with inflation and interest rates likely to diminish later in 2024.
The bottom line
The window of opportunity may be closing to take advantage of savings vehicles with high interest rates. But that opportunity hasn't quite passed yet, either. A high-yield savings account still offers savers a great way to maximize their returns without having to forego the flexibility and access they otherwise would have to with a CD. And compared to regular savings accounts, the benefits become even clearer. So consider opening a high-yield savings account now with inflation cooling but interest rates still high. If you wait, you may miss out on big savings.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
