Will savings accounts start paying more interest in 2022?

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They may, but don’t get too excited just yet.

Key Point

• Savers have earned little interest from their bank accounts for years.
• Interest rates may rise slightly in 2022, but probably not to a significant degree.

The advantage of keeping money in a savings account is that you can earn interest on that cash while protecting your principal. But in recent years, interest savers have earned very little.

At the time of this writing, even popular high-yield savings accounts pay somewhere in the ballpark of 0.40% to 0.60% interest rates. A $10,000 deposit will charge you $40-$60 per year in interest.

In the coming months, interest rates on savings accounts may increase for one specific reason. But whether they increase significantly is another story altogether.

Don’t expect too much growth in savings accounts

The Federal Reserve is planning a rate hike in 2022, which could lead to higher interest rates on savings accounts. Just to be clear, the Fed is not responsible for determining which banks will pay consumers who have their money stored there. Fed does not actually set Any Consumer interest rates, and that extends to mortgage interest rates, credit card interest rates, and so on.

However, the Fed’s actions tend to affect consumer interest rates, so various interest rate hikes are likely later this year. That’s not a good thing in a debt context. For example, a homebuyer prefers a low mortgage rate over a high one, while credit cardholders want less interest on their balance. But for savers who keep their money in banks, higher interest rates are a good thing.

However, consumers No Expect interest rates to rise sharply later this year. It could rise towards the 1% mark, but I doubt it will rise in any meaningful way any time soon. Therefore, it is important not to keep large amounts of money in the bank.

don’t overspend your savings

As a general rule, we recommend that you keep enough money in your savings account to cover your living expenses for three to six months. That way, if you lose your job, you’ll have a cash reserve that you can use while you’re looking for work. That money might also come in handy if you run into large unscheduled bills that your salary can’t cover, like home or car repairs.

But once you manage to save six months of essential expenses, you should consider investing the rest of your money in something else. brokerage account and invest in it. These days, savings accounts pay less than 1% interest. But when it comes to investing money, you can get much higher returns if the market does well and you choose the right assets to buy.

Of course, there are risks in investing. This means that your portfolio may not perform well and you may incur losses. As such, a brokerage account is definitely the wrong place for your emergency fund. It’s that you don’t want to risk a scenario.

But savings accounts don’t pay out as generously, so you should limit how much you keep in one account. The saver may end up enjoying slightly higher interest rates in 2022, but it’s quite possible he won’t be able to write much down yet, even towards the end of the year.