What does a high yield savings account have to do with inflation? For many of us, the impact of inflation on our wallets is obvious. As prices rise faster than wages, we might feel the pinch with every purchase, from the grocery store to airlines.
An important job of the Federal Reserve, the central bank of the United States (a.k.a. “the Fed”), is to control the levers in our economy that can keep trends like inflation from running amok. One of those levers is the interest rate we call “the Fed rate,” the price banks charge each other to lend Federal Reserve funds. To stymie inflation, the Fed has raised its rate several times in 2022.
Even though it only explicitly applies to Federal Reserve lending, the Fed rate has a ripple effect throughout our economy. It slows inflation by making it more expensive for banks and consumers to borrow money and, therefore, decreasing demand and reducing prices. Consumer interest rates tend to go up with the Fed rate.
If you’re judging by headlines or political talk, all of this might sound like bad news. But there’s a fantastic upside to an increase in the Fed rate: It can boost your savings account.
What Rising Interest Rates Mean for Your Bank Account
Rising interest rates might come with drawbacks, but they can be great for your savings.
So-called Fed rate hikes are presented in headlines almost universally as bad news. When it costs banks more to borrow, they charge you more to borrow, too. That means requirements for lending might be tightened, and variable interest rates on mortgages go up.
The good news? Higher rates mean the interest you can earn in your savings account increases, too.
When the Fed rate goes up, banks raise both APRs (annual percentage rates, the interest accrued on outstanding debt) and APYs (annual percentage yields, the interest paid on balances the bank holds for you).
Here’s an example: The average savings account APY sat at 0.06% for almost all of 2021 and the first half of 2022, as the FDIC reports1. As the Fed announced four rate increases throughout 2022, that average began to move up. With a big jump in the base rate in July 2022, the average savings account APY also jumped, almost doubling to 0.10%1 — back to the place it sat for several years pre-pandemic.
Why Open a High Yield Savings Account Now
In the continued fight against inflation, Fed rates are expected to continue to rise — which means savings account APYs should continue going up, too.
The earlier you deposit money into an interest-bearing account, the more work your money may do for you. Through interest, your money grows on its own; even better, you get to earn interest on the interest you’ve already added to your balance. That’s called compound interest, and it’s the magic that may make your money grow faster over time.
As interest rates rise, your savings will be able to grow even faster.
No matter how much you have to set aside, putting it into a high yield savings account now may have a massive impact on your savings in the future. The sooner you put it into an account and start earning interest, the bigger a balance you may have to take advantage of higher and higher interest rates.
What High Yielding Savings Account Should I Consider Right Now?
With a Quontic High Yield Savings account, you can earn 2.05% APY2 on your balance as of this writing (the rate changes regularly, so be sure to check our High Yield Savings page to see where it stands currently). That’s over 15x greater than the average savings account rate1. Your interest compounds daily, which gives you maximum opportunity to benefit from compounding interest.
You can open a High Yield Savings account online in just a few minutes with a minimum opening deposit of $100. You’ll pay no monthly service fees, as long as you make less than six withdrawals per month.
Plus, with Quontic, your savings isn’t just another asset to make money for a big bank. We use your deposits to bring the dream of homeownership to low-income families, immigrants, people of color, small business owners and others who aren’t given fair access to mortgage financing through traditional channels. So, it’s a savings account you can feel good about.
Interested in learning more about what Quontic has to offer? Open a high-yield savings account today or if you’ve got questions, our team is ready to help. Call us at 1-800-908-6600.
1National Average APY information as of August 19, 2022, according to the FDIC National Rates and Rate Caps.
2High Yield Savings Account – $100 to open account. Rates may change without notice. There is a $10.00 excess transaction fee for every transaction over six for preauthorized withdrawals, automatic or telephonic transfers, checks, drafts, and debit card or similar transactions from your account per account statement cycle. If the account is closed before interest and/or bonus is credited, accrued interest and/or bonus may be forfeited for that statement cycle. Fees could reduce earnings. Ask for details. Additional terms, conditions, fees & exclusions may apply. Information is as of August 19, 2022.