ROCHESTER, N.Y. — Inflation remains stubbornly high at around 3% according to the Consumer Price Index and Personal Consumption Expenditures Price Index. The Fed wants inflation down to 2% so on March 19 the Fed chair announced it is not cutting interest rates in the hope that high rates will tame inflation.
While high interest rates are bad for folks who want to borrow money, they’re great for those who want to save it.
Jarrett Felton, CEO of Invessent, said, “If people need money for a purchase later this year 2025. If people are looking to buy a home and they need a downpayment, that’s where the money markets and the high yield savings accounts are a good place to go.”
Deanna Dewberry, News10NBC: “Is this a place to put your emergency savings?”
Jarrett Felton: “Yeah sure. I think that’s a great place to put your emergency savings or a sinking fund.”
A sinking fund is money you’re saving for a specific purpose like buying a car. Jarrett says socking your money in an account with a higher yield is far better than putting it in a traditional savings account.
There are plenty of high yield savings accounts and money market accounts with an interest rate around 4%, higher than the rate of inflation. Let’s take a look at the following example: If you stick $2,000 in a high yield savings account and sock away $100 a month, in 12 months you will have saved another $1,200 and earned over $100 in interest. Your total savings will be $3,301.84.
But put that money in a traditional savings account with a yield of 0.01% and you’ll save the same $1,200 but your interest earned will be a whopping quarter for a grand total of $3,200.25.
“So why not make some interest on your money while it’s waiting to be spent, hopefully not, hopefully there’s no emergency. But in the event that there is you’re going to make some interest while it waits,” Felton said.
Online banks tend to have higher yields but Jarrett says to make sure it’s FDIC insured and you understand the terms. Some high yield savings accounts require you to wait days to make a withdrawal and some money market accounts require your money to be held for a certain period of time before it starts accruing interest.
Click here for Bankrate’s recommendations for high yield savings accounts and here for its money market account recommendations. Click here for NerdWallet’s recommendations for high yield savings accounts and here for its money market account recommendations. And lastly, click here for LendingTree’s high yield savings account recommendations, as well as its recommendations for money market accounts.
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