The Federal Reserve refrained from cutting rates at its meeting this week. This is due to sticky inflation and rising gas prices.
While inflation cooled some, with prices 3.50% higher year-over-year in June's CPI report, that drop is likely a short-term thing. As long as the conflict in Iran persists, gas prices will remain higher.
David Payne of the Kiplinger Letter notes that if there isn't a resolution to the war, inflation will likely be around 4.0% by year's end. It means if you don't have a savings account earning at least this, you're losing purchasing power. I'll explain whether high-yield savings accounts are still worth it, and which one is essential right now.
Is a high-yield savings account worth it?
Yes, a high-yield savings account remains a smart choice. In fact, it should be an essential part of any personal financial plan. Think of savings as you do investing; there are ebbs and flows.
Right now is tricky for savers. Not only are you looking at higher inflation, but most high-yield savings accounts offer rates that don't keep up with inflation. With that in mind, here's your best bet:
There are other considerations with a high-yield savings account. Chief among them is that they come with variable interest rates. This could play in your favor; if inflation continues, the Fed might raise rates, which would eventually increase savings returns.
Another consideration is cash access. Some high-yield savings accounts don't come with ATM cards, so unless you have a checking account with the same bank, it can take one to several business days to transfer funds from your savings to your checking. By that same token, though, it also can help you think twice before making impulse purchases.
If you're interested in opening an account, you can use this Bankrate tool to compare your options:
How much can you earn with a high-yield savings account?
It depends on how long you plan to hold the money in the account and how much you want to deposit. Using our top choice, Newtek Bank, here's how much you can earn in a year with its current 4.20% APR:
- $5,000: You'll earn $214.46
- $10,000: You'll gain $428.92
- $25,000: You'll earn $1,072.30
- $50,000: You'll gain $2,144.60
Is it the best option for your savings needs? If you need quick access to your cash for a short-term purchase or if your expenses are sometimes unexpected, then yes, a high-yield savings account will be the best fit for you.
However, if you have emergency savings fully funded and don't mind tying up your money for a short time, then the best CD rates offer you better protection, since they feature guaranteed rates.
Just remember that CDs require you to tie up your money for the term you selected. So, if you don't want to restrict access to your cash, it's difficult to beat the flexibility a high-yield savings account offers.
Now is the time to shelter your savings from inflation
The Fed didn't cut rates at its meeting. With gas prices rising again, it means inflation will continue to impact your everyday purchases.
A smart way to shield your cash from inflation is with Newtek Bank's savings account. And if inflation persists, the Fed might raise rates, putting you in a great position to maximize gains now and later.
Not sure how inflation and changing interest rates could shape your broader financial strategy? A financial planner can help you decide where to keep your cash while balancing short-term needs and long-term goals.
Use the Bankrate tool below to connect with a vetted financial professional who can help you build a strategy to reach your goals:
