Federal Reserve Interest Rates and Attractive Savings Yields

Many banks are increasing yields on various savings products to attract customers, even as it remains uncertain how long the Federal Reserve will keep interest rates high. Sallie Mae recently raised the annual percentage yield on its one-year certificate of deposit to 5.5%, a 40 basis point increase. Other banks, such as Marcus by Goldman Sachs and Synchrony Financial, have also raised rates on their one-year CDs to 5% and 5.1% respectively. The Fed’s series of rate hikes since March 2022 have contributed to higher yields on these investments and Treasury bonds. Analysts predict that these increased yields may continue to rise in the near future, anticipating more rate action ahead.

Higher CD Rates and Online Institutions

Online institutions offering two-year CDs have also raised their rates. Marcus and Synchrony both increased their yields by 5 basis points to 4.4% and 4.35% respectively. CDs are attractive to banks as they help attract stable deposits, with customers facing penalties if they withdraw their money before the maturity date. However, once customers purchase a CD, they are locked into that rate for the specified term. This differs from high-yield savings accounts where banks can change the rate at any time.

Future Outlook for Banks and Investors

Investors are wondering how long banks will continue to increase their yields. According to Morgan Stanley analyst Betsy Graseck, historical trends suggest that deposit costs peak 1 to 2 quarters after the Fed starts cutting rates. Despite the market not expecting any more rate hikes in the current cycle, Graseck believes that deposit costs will continue to rise until the Fed begins reducing rates. It remains to be seen how long banks will sweeten their yields.

Source: ‘s Michael Bloom contributed to this story.