Although borrowing will be more expensive, these higher interest rates will reward savers. Still, it may take some time before those yields compete with inflation.
“Inflation has to come down a lot before those higher savings rates really shine,” McBride said.
However, it is a good idea to set aside emergency cash. Experts generally recommend spending at least three to six months, depending on your situation.
“This is a decision based on your need for liquidity and your broader financial goals,” McBride said.
Online savings accounts
Online savings accounts started the year with rates around 0.5% and are now above 2%.
McBride predicts that upward momentum should continue.
“I wouldn’t be surprised if we get to 3% in the fall,” he said.
Money market accounts are also poised to see a jump in rates, he said.
Certificates of deposit
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“We’re going to see more of a response to rising rates on the shorter maturity CDs — the six months, the one year,” McBride said.
Six-month CDs are currently above 2.25% to 2.3%, which could see real upside momentum, he said.
McBride predicted that the move to longer maturities, such as three-, four- and five-year CDs, will likely be more subdued amid recession fears.
Series I bonds
Series I bonds, which currently offer a Annual rate of 9.62% until October, they have been a win for savers who want higher returns closer to inflation.
However, these rates are not tied to the Federal Reserve. Instead, they rely on government inflation data.
“As inflation goes down, so will the yields on the I bond, because they’re structured to essentially pay you back inflation,” McBride said.
So as the Fed lowers inflation to 2%, I-bonds will also fall to that level, though it won’t happen overnight, he said. A new annual rate for Series I bonds will be announced in November.
In particular, Series I bonds have purchase limits and require you to commit to holding your money for one year. Plus, you’ll pay a penalty if you sell within five years.
Accordingly, if you’re looking for a place to stash emergency cash, you may want to choose an account that’s more accessible.
“If you don’t have emergency savings, you need a savings account or a money market deposit account,” McBride said.
“It doesn’t matter if the interest rates are 0% or 10%,” he added. “This must be liquid.”