How High Will Savings Account Rates Be in 2023?

You could get paid more on your savings.

Inflation has been torturing consumers for well over a year now, to the point where a lot of people have had no choice but to rack up costly credit card debt just to pay their bills and put food on the table. The Federal Reserve is doing its part to address the situation, though.

The Fed has already implemented several steep interest rate hikes in an effort to slow inflation. By making it more expensive for consumers to borrow, the hope is that spending will decrease enough to allow supply to catch up to demand. Once that happens, inflation should start to cool.

That said, higher borrowing rates aren't exactly a good thing for consumers. But there's a silver lining here, and it's that the Fed's interest rate hikes have also led to higher interest rates in savings accounts. And there's reason to believe that trend could continue in 2023.

Will savers earn even more next year?

Let's get one thing cleared up before we go any further. The Fed doesn't directly determine what rates credit card companies charge consumers or what rates banks offer for savings accounts and CD deposits. Rather, the Fed is in charge of the federal funds rate, which is the rate banks charge each other when they borrow on a short-term basis.

But when the federal funds rate goes up, consumer interest rates tend to follow suit. That's a good thing in the context of banking products, but for loans and credit cards, not so much.

Meanwhile, over the past several months, many people have seen the interest rate on their savings accounts increase. Similarly, banks have been offering more generous CD rates this summer compared to earlier in the year.

Since the Fed isn't done hiking up interest rates, it's fair to assume that borrowing could get more costly for consumers in the coming months, and all the way into 2023. But it's also fair to assume savings accounts will start to pay more as well.

Now the extent to which they start to pay more is hard to predict. These days, a lot of high-yield savings accounts are offering up annual interest rates of 2%. That's a marked improvement from earlier in the year, when many savers weren't even getting 1% on their money. 

It's difficult to put a precise number on where savings account rates could land in 2023. But it's not unreasonable to think they might creep toward the 2.5% or 3% mark. 

And remember, CDs tend to pay higher interest rates than savings accounts. So even if savings account rates don't rise much compared to where they are today, there may be opportunities to earn more interest by opening a CD.

Should you put more money into savings in anticipation of higher interest rates?

If you don't have a complete emergency fund, then it definitely pays to work on boosting your savings. But if you're set in that regard, you may want to consider putting extra money you have into a brokerage account. 

While savings accounts could pay generously in 2023, you might generate much higher returns on your money by investing in a brokerage account. So if you're talking about money you don't expect to need anytime soon, keeping that cash in a savings account could actually mean settling for a lower return than you might be able to get.