online savings account typical interest rate : Savings accounts are a popular way for consumers to store cash safely and earn interest over time. While interest rates have remained relatively low since the Great Recession, recent developments suggest online savings account rates could see noticeable increases in 2024. Here is an overview of current savings account rates, what drives interest rate changes, and what savers may be able to expect in the coming year.
Current Interest Rates: Online vs. Brick-and-Mortar
The average interest rate on savings accounts at brick-and-mortar banks is a meager 0.06% as of October 2023, according to the Federal Deposit Insurance Corporation.[1] Rates for online savings accounts tend to be far higher. For example, top online banks like CIT Bank and Barclays currently offer around 2.30% APY on basic savings accounts. [2] The convenience and frequently higher returns of online savings accounts have made them a popular alternative for many consumers.
What Impacts Interest Rate Changes on Savings Accounts
Interest rates on savings accounts are primarily influenced by the Federal Reserve’s actions and overall economic conditions. Here are some key factors:
- The Federal Funds Rate: This is the rate banks pay to borrow reserves overnight from the Federal Reserve. It heavily influences the rates banks pay consumers on deposit accounts like savings accounts.
- Competition: As more online banks have entered the market, competition has driven established players to offer attractive rates to lure new customers. This puts upward pressure on savings account rate offers.
- Economic Conditions: When the economy is strong, banks have more flexibility to pay higher deposit rates. Weaker growth and lower loan demand give banks less incentive to attract deposits.
Projecting What’s Ahead for Interest Rates
Forecasting future interest rates is notoriously difficult, but there are good reasons to expect the upward trend for online savings accounts to continue through 2024:
- The Federal Reserve is likely to continue raising the federal funds rate over the next year to combat high inflation. This will translate to higher deposit rates.
- Strong economic fundamentals heading into 2023 and headwinds from inflation indicate online banks will remain hungry for deposits.
- New fintech players will continue disrupting the space and pushing rate offers higher.
Overall, most analysts expect interest rates across financial products to be notably higher in 2024 compared to 2022 and 2023.[3]
Savings Account Interest Rate Outlook for 2024
Given current conditions and expectations for 2023, online savings account rates in the range of 2.5-3.0% APY look reasonable in 2024. Here are some key points:
- Top online banks will likely be in the 2.7-3.0% APY range. Regional banks may trail at 2.5-2.8% APY.
- High-yield and specialty savings accounts can offer even better rates, but often have requirements like high minimum balances.
- Brick-and-mortar banks will continue lagging online banks but should see rates in the 0.5-1% range.
Savers looking to maximize returns should shop around for the best rate offers. Consider opening accounts at multiple online banks to take advantage of promotional rates. Make sure to factor in other features like minimum balances, fees, and accessibility.
With rising interest rates on the horizon, keeping funds in an online savings account will provide savers a risk-free way to generate stronger returns on their money in 2024. Maintaining an emergency cash cushion and taking advantage of higher yields can be a winning combination.
Conclusion
While predicting exactly where interest rates will go is difficult, online savings accounts are likely to offer yields in the 2.5-3.0% range in 2024. This presents an opportunity for savers to earn good returns on savings while keeping money safe and accessible. With online banks still battling for deposits and economic conditions favoring higher rates, the terrain ahead seems promising for maximizing savings account interest earnings. Staying abreast of rate offerings and laddering funds across multiple online accounts can help consumers make the most of this trend.
FAQs
Q: How frequently do online banks adjust interest rates on savings accounts?
A: Online banks typically monitor and adjust rates on savings accounts about once per quarter. But they can change them anytime based on market conditions and competitive factors.
Q: Which online banks currently offer the highest savings account rates?
A: As of late 2022, some of the top savings account rates are offered by CIT Bank, Barclays, Marcus by Goldman Sachs, and Ally. Rates are over 2.25% APY.
Q: Are there risks to earning a higher interest rate on an online savings account?
A: There are minimal risks, as accounts up to $250,000 per depositor are FDIC insured. However, it’s smart to verify a bank’s reputation and financials.
Q: How often should savers check for high-yield savings account rate offers?
A: It’s a good idea to evaluate savings account rates every quarter when banks may adjust them. Check rates when your term ends or if your balance reaches a new tier level.
Q: What is the simplest way to start earning more interest on savings?
A: Opening an online savings account at a bank advertising a high APY is the easiest first step. Make sure to meet any minimum balance requirements.
[1] FDIC weekly national rates: https://www.fdic.gov/regulations/resources/rates/ [2] Best savings accounts for November 2022: https://www.bankrate.com/banking/savings/rates/
[3] Kiplinger forecast on 2023 interest rates: https://www.kiplinger.com/economic-forecasts/interest-rates