The Federal Reserve raised rates at the fastest pace in 40 years in 2022, causing savings and money market accounts to reach levels that savers havent seen since 2008.
Bankrate Chief Financial Analyst Greg McBride, CFA, says to expect top-yielding savings and money market rates to hit 5.5% annual percentage yield (APY) in the middle of 2023, reaching 2007 levels. He also expects those yields to end the year at around 5.25% APY. Both top yields are for nationally available accounts.
The Fed should be comfortable moving to the sidelines if inflation begins decreasing, like weve started to see just in the past month or two, for a period of time, McBride says.
I want to be specific: Im not saying that inflations going to hit their 2% target by the middle of the year and theyre going to move to the sidelines, McBride says. No way. Its just theyre going to feel comfortable enough that its moving in the right direction and that theyve put enough rate hikes in effect to sustain that.
Key takeaways:
- Top-yielding savings and money market rates are projected to peak at around 5.5% APY in the middle of the year and to end the year at 5.25% APY, according to McBride.
- The national average rate for savings accounts will be 0.29% by the end of 2023, McBride forecasts, while predicting an average of 0.34% for money market accounts.
Savings and money market account rates surged in 2022
The federal funds rate decreased to near-zero levels on Sunday, March 15, 2020during an emergency meetingand stayed there until March 16, 2022. It didnt take long for savings rates to recover and raise APYs to compete for deposits.
Savings and money market accounts at top-yielding banks soared to levels savers havent seen in more than a decade in 2022, closing out the year at 4.16% APY for savings and 4.15% APY for the top money market yield.
The national average for savings accounts ended 2022 at 0.20% APY and 0.25% APY for money market accounts.
Higher yields were a win for savers, but they also had to contend with decades-high inflation. That surging inflation was the main reason that the Fed raised ratesusing its rate-raising tool to try to cool the economy.
Both the top-yielding savings account and the top money market account began 2022 at 0.55% APY. The national savings average yield was 0.06% APY at that time, and the money market account national average was a little higher, at 0.07% APY.
Expect banks to fiercely compete for your deposits
Top-yielding online banks are competing for your money. This was the trend for most of 2022 and should continue in 2023. While savings and money market yields are expected to peak in the middle of 2023, youre not going to find APYs this high everywhere, McBride says.
Particularly for online banks or smaller community banks that dont have the marketing budgets of their larger competitors, the one effective way to boost deposits is to pay a better rate, McBride says. And thats the path that theyll follow. And as a saver, if you go down that path too, you win.
This high inflation and increasing savings yield environment is unique.
Even if rates held steady and inflation came down, thats a win for savers, says McBride. And so, you get rates to go up and inflation to come downthats the holy grail. Thats going to be a very positive backdrop for savers in that rates will continue to rise a bit more and that well start to see inflation pulling back.
Next steps for savers
So, what should consumers do with these predictions? McBride says only one in four Americans has an adequate emergency savings account.
For the majority of households, their focus should be on emergency savings shoring that up first. And I think the environment is certainly very positive.
Greg McBride, CFABankrate chief financial analyst
Its going to be the most positive at online banks. So you have to be willing to move your savings account to one, McBride says.
Its not an all-or-nothing decision, says McBride. Youre not talking about severing your entire banking relationship. You can just move your savings and then link it to the checking account you have with your current financial institution. But you have to be willing to move that savings in order to get the higher rate of return.
As rates increase, the disparity between the top-yielding banks and the average yields is going to continue to grow, McBride says.
Thats why its important to shop around and compare banks to find the best account for you.
