To maximize returns on savings, finding the right interest-bearing account is essential. Interest rates for these accounts remain decent, presenting opportunities for savers. However, potential changes could arise if the Federal Reserve raises interest rates. According to the CME Group’s FedWatch Tool, there’s approximately a 30% chance of a rate increase in September and nearly a 45% chance in October.
A Federal Reserve rate hike could lead to higher interest rates on savings products, including high-yield savings and money market accounts. But which account suits those who wish to benefit most from future Fed rate changes? Experts offer insights.
Money Market Accounts: Flexibility and Access
The main distinction between money market and high-yield savings accounts is fund accessibility. High-yield savings accounts often limit withdrawal frequency. Money market accounts typically offer more flexibility, allowing more transactions per month and providing a debit card or checkbook.
“If you want to manage cash by frequently spending or moving it while earning yield, a money market account is preferable,” explains Alastair Wood, CEO of the savings marketplace, Raisin.
This flexibility can be advantageous if the Fed raises rates since inflation and consumer prices may rise concurrently. A money market account would enable you to earn interest and access funds, making it easier to address rising prices.
A’jha Tucker, product manager at Georgia’s Own Credit Union, states it may be ideal for those who want interest earnings with on-demand fund access.
High-Yield Savings Accounts: Maximizing Impact
High-yield savings accounts might be better for those seeking significant effects from Fed rate changes. While both account types will adjust rates relatively quickly after a Fed move, high-yield savings rates tend to be slightly superior.
“Money market account interest rates are generally lower due to their transactional features like debit cards and checks, absent in high-yield savings accounts,” says Wood. “A money market account acts as a hybrid between checking and savings.”
High-yield savings accounts generally require lower opening and minimum balances compared to money market accounts, which may include fees that reduce earnings. Tucker notes some high-yield accounts necessitate higher balances to secure the best rates.
Additional Options and Considerations
Aside from high-yield and money market accounts, a certificate of deposit (CD) can be a viable option. CDs allow you to lock in high rates and earn guaranteed interest. Using a CD ladder strategy spreads funds across various terms, permitting investment in new CDs at potential higher rates once existing ones mature.
Experts advise opening savings or money market accounts promptly, shopping around for rates and banks. Steve Juodawlkis, director at PSECU, suggests avoiding timing account openings around Fed decisions. Compare current options and monitor rates if Fed adjustments occur, ensuring your savings earn competitive returns while remaining accessible.
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