No matter your age or income, it’s important to come up with a strong savings plan to secure your future. Whether you’re saving for retirement, to put your kids through college or for a potential emergency, having money set aside is a part of just about any viable financial strategy.
Right now, one of the best places to put the money you are saving is in a high-yield savings account. If you’re looking to boost your savings — or if you’re behind on implementing a savings strategy and want to start being more financially responsible — you should consider opening a high-yield savings account right now, before the new year rolls around.
Why you should open a high-yield savings account before 2024
There are a few reasons why putting money into a high-yield savings account before 2024 makes sense, including:
Rates are high right now
As of November 2023, you can get an interest rate between 4.25% and 5.27% for many high-yield savings accounts. Rates for high-yield savings accounts are especially high right now in large part because the Federal Reserve has repeatedly raised the federal funds rate over the past 18 months.
While the Fed does not directly control rates for consumer lending and savings products, many consumer products — including savings accounts and certificates of deposit (CDs) — have rates that tend to move in step with the federal funds rate. Every day you wait to deposit money into a high-yield savings account is a day you miss out on these high rates.
Keep in mind that to get these rates, you should look at both online financial institutions and traditional banks. Traditional banks have physical locations with overhead costs, but online-only banks don’t, and can, in turn, afford to offer some of the highest interest rates to customers.
Rates could go up
While rates are high right now, there is a chance they will go up later this year or next year — which would likely impact your high-yield savings account, earning you even more interest.
The Federal Reserve has raised the federal funds rate recently because inflation has been high. When the inflation rate is too high, it’s important to curb spending so that there is less money circulating in the economy. Raising interest rates discourages borrowing and spending, which could help to lower inflation.
Generally speaking, the plan has worked. Inflation peaked at more than 9% year-over-year in June 2022 and was down to under 4% year-over-year by September 2023. That is a significant drop, but it isn’t quite at the Fed’s target rate of 2%.
This means that more rate hikes could be coming. The next Fed meeting is in December, and if the inflation report for November doesn’t show more improvement, we could see rates go up again.
So, by putting your money into a high-yield savings account now, you will reap the benefit of that potential rate hike.
The power of compounding
No matter what the rate environment is, saving money early is a good idea because of the power of compound interest. Let’s say you put $500 into a savings account and earn $20 in interest in the first month. If your account compounds monthly, the next month you won’t be earning interest on just $500, but on all $520 in your account.
That might not seem like a big deal — it’s only a small percentage of $20, after all — but over the years, compound interest can make a serious difference in how much money you have saved. Getting started now maximizes your savings potential and will leave you with the biggest possible nest egg.
The bottom line
High-yield savings accounts are a great way to set aside money and see it grow. Rates are especially high right now and could go up even more, so opening an account before the end of 2023 could be a part of a strong savings strategy.
