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Will savings rates go down after the next Fed meeting?

Saving money is a pillar of almost any financial plan. Putting money aside for the future not only helps to set yourself up for when you are done working, but it also gives you access to cash you can use in an emergency or if your employment situation changes.

And, right now, there are lucrative account options for your savings. For example, many banks currently offer high interest rates on high-yield savings accounts, so your savings can grow simply by sitting in the bank. Top high-yield savings accounts are nowoffering between 4.25% and 5.27%, so opening the right savings account can result in significant interest payments.

Rates are high right now largely because the Federal Reserve has raised rates numerous times over the past 18 months. While the Fed doesn’t directly set interest rates for consumer products, it does set the federal funds rate. And, consumer lending and savings rates tend to track alongside the federal funds rate, so when the Fed takes action, it can have a big impact on savers. And, there is one more Fed meeting left this year, scheduled for Dec. 12-13, so many are wondering what will happen to savings rates after the meeting.

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Will savings rates go down after the next Fed meeting?

Whether or not savings rates go up, down or stay the same after the December Fed meeting depends largely on what decisions the board makes during the meeting. Here’s what to expect.

What happens if the Fed raises rates?

At the last two meetings, the Fed has chosen to pause rates rather than raising or cutting them. While this has led to speculation that the rate hikes are over (for now), there is a chance that there will be another hike in December. In fact, Jerome Powell, the Fed’s chair, implied this after the November meeting.

“If you read his commentary, he certainly reserves the right for another rate increase,” says Rich Guerrini, president and CEO at PNC Investments. “I hope he doesn’t, but I think there is a fair likelihood that that could happen.”

If the Fed does choose to raise rates, that could mean an uptick in the interest rates offered by banks for consumer savings products, including high-yield savings accounts and certificates of deposit (CDs).

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What happens if the Fed cuts rates?

This is largely an academic exercise, as there is little chance that the Fed will cut interest rates at the December meeting, according to Guerrini.

The Fed simply isn’t “in a place that is going to reduce rates anytime soon,” says Guerrini. “I feel we would be higher for longer, maybe longer than we anticipated, until we get to a place where those [previous rate hikes] cool the economy a bit, cool inflation a touch.”

The Fed’s big hikes over the past 18 months have largely been in response to inflation, which peaked at more than 9% year-over-year in June 2022. In September 2023, the inflation rate was 3.7% – which is better, but still not at the 2% target set by the Fed.

If, by chance, the Fed were to lower rates, though, you might see consumer savings rates follow suit.

What if the Fed does nothing to interest rates?

If this happens, it would be the third straight meeting at which the Fed opts to pause interest rates. Not changing interest rates would continue to let the high interest rate environment do its work to bring down inflation while not impacting consumer rates. Remember, high rates are great for savers, but are not so good in other ways. For example, mortgage rates are high right nowdue to the Fed’s recent rate hikes, making it tough for people to buy and sell their homes.

If the Fed does opt to keep rates where they are, it is reasonable to think that interest rates for savings accounts will stay more or less where they are now.

The bottom line

All eyes are on the Fed right now as the board looks to its last meeting of the year. This meeting could have a big impact on the rates people get at their savings institutions, as the actions of the Fed on the federal funds rate will likely impact the rates offered to consumers.

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