For the past year, you’ve likely enjoyed a higher-than-usual annual percentage rate (APY) on your savings account. As of June 2024, you can find accounts with rates .
These higher rates are due to to control inflation — namely, raising the federal funds rate multiple times between March 2022 and July 2023. So, what’s the interest rate forecast for the remainder of 2024?
Based on a statement from the Federal Reserve following its , rates will stay near their current levels. Until the Federal Reserve starts slashing rates, APYs are unlikely to change. Read on to learn more about how the Fed’s decisions impact interest rates and whether savings rates will go up or down at all this year.
How are bank account savings rates set?
, so they have the ability to set their own rates. They can raise APYs on savings accounts to attract new customers and additional cash deposits, and rates can vary by institution. Savings account rates are variable, meaning they can increase or decrease as the industry and economic conditions change.
Although banks have control over their own rates, they are influenced by other factors, including the — the rate at which banks lend to each other.
The federal funds rate is set by the Federal Reserve. Certain members of the Fed, known as the Federal Open Market Committee (FOMC), meet eight times per year. During these meetings, the committee discusses whether to adjust the federal funds rate.
The Fed may adjust its target rate to make borrowing between banks more or less expensive, depending on economic changes. The goal of the Federal Reserve’s efforts is to maintain an inflation rate of about 2.00% — the rate that experts believe is consistent with pricing stability, positive employment rates, and economic growth.
When inflation is high, the Federal Reserve will hike the federal funds rate to make lending between banks more expensive. As a result, other bank product rates will follow suit; loans will be more expensive with a higher annual percentage rate (APR). But the APY on deposit accounts will also increase.
Federal funds rate for 2024
Inflation reached a 40-year record high of 9.1% in 2022. To combat the sky-high inflation rate, the Fed instituted several rate hikes. The target range for the federal funds rate increased from 0.25%-0.50% in January 2022 to 5.25%-5.50% in July 2023.
Since then, the Fed has maintained that target range. Thanks in part to the higher federal funds rate, the inflation rate has cooled. Although it’s still higher than the 2.0% goal, it decreased to 3.3% in June 2024.
With inflation rates dropping, some experts expected the Fed to reduce the federal funds rate during its June meeting. But in its latest , the Fed said the economic outlook is uncertain, so it decided to maintain the current federal funds rate. It said that it wouldn’t be appropriate to reduce the rate until it’s more confident that inflation will decline closer to the 2.00% goal.
What is the interest rate forecast for savings accounts in 2024?
Due to the high federal funds rate, the rates on savings accounts have also been elevated by historical standards. The average APY on savings accounts in 2024 (0.45%) is nearly seven times higher than the average rate in 2022.
Since the federal funds rate is unchanged, the APY on savings accounts is unlikely to change for now, and rates should remain steady.
However, rates may go down later in the year and into 2025. If the economy evolves as experts predict, the federal funds rate will drop to 5.1% by the end of the year, and to 4.1% by the end of 2025, according to Fed Chairman Jerome Powell. If those predictions come to fruition, savings account rates will decline at a similar rate. However, he notes that “these projections are not a Committee plan or any kind of decision.”
How to maximize your savings interest rate
Currently, you can find with rates as high as 5.00% APY. For now, savings accounts will continue to earn a steady APY, but rates may decrease toward the end of year, so you may want to explore other options, such as (CDs), to maximize your savings.
While savings accounts have variable APYs that fluctuate along with market conditions, CD rates are fixed for the duration of their term. You can lock rates as high as 5.20% with CDs from leading banks. However, there is a catch: the money deposited into a CD cannot be withdrawn until the CD reaches its maturity date. Otherwise, you’ll have to and lose accrued interest.