The Federal Reserve decreased its benchmark federal funds rate three times in 2024, starting on Sept. 18. It cut rates by 50 basis points in September and 25 basis points each in November and December. The Fed raised rates 550 basis points from March 2022 to July 2023 and lowered rates by 100 basis points in 2024.
There are two high-yield checking accounts with interest of at least 7%, though: BCU PowerPlus Checking and Landmark Credit Union Premium Checking Account. Both come with major downsides, though. Are 7% interest savings accounts safe?
Thanks to the Federal Reserve's historic 2022-2023 rate-hike campaign to combat post-pandemic inflation, certificate of deposit (CD) rates surged to 20-year highs in late 2023—reaching above 6%.
Should I open a CD now or wait? It might be a good idea to get a CD now, since rates are expected to drop in the future. "If they want to get in the market for a CD, now might be the better time to lock in that higher yield, so they're shielded — at least for the near term — as rates continue to drop," says Stroup.
Yes, you can get 6% on a CD now. As of January 10, 2025, the Financial Partners Credit Union is offering 6.00% APY on their CD rates for 8 months. The minimum deposit is $1,000.00, up to a $5,000 maximum. Check out the latest CD rates from over 400 banks and credit unions.
For the foreseeable future, you won't find any banks that offer 7% APY on savings accounts. However, you can find some credit unions that pay 7% or more on checking accounts. Before opening an account, take a close look at the terms and conditions to determine whether you can earn the advertised rate.
A stocks and shares Isa is likely to be most suitable. That is unless you will turn 55 within 30 years, in which case a pension might be a better tax wrapper for you. If you're unsure about the time horizon, you could invest in both a pension and a stocks and shares Isa.
CD account interest rates will drop
After all, the Federal Reserve lowered its benchmark rate three times in 2024, and many analysts expect there to be at least two more Fed rate cuts in 2025.
It's likely savings interest rates will decline in 2025 if the Federal Reserve continues to cut interest rates. In 2025, you'll likely see top high-yield savings rates dip below the 4% to 5% range, and average savings account interest rates under the current rate of 0.42% APY.
Bandhan Bank is a leader among private banks, offering 8.05% interest for 1-year fixed deposits. RBL Bank offers 8.00% on FDs with a tenure of 500 days, ensuring that medium-term investors also get good returns.
“In simple terms,” says Richiest's Ashley, “the money you earn from a high-yield savings account is usually taxed just like your regular income. “This means that the interest you make on these accounts gets taxed by the federal government and, depending on where you live, your state government too.”
Right now, there aren't any financial institutions offering 7% interest on a CD. However, California Coast Credit Union is offering a 5-month Celebration Certificate with a 9.50% APY. The credit union's membership eligibility requirements are limited to people who live or work in San Diego or Riverside counties.
While high-yield savings accounts offer high APYs and zero risk, they're not the best way to grow your wealth long-term. That's because your APY can go up and down, and your yield may not outpace the inflation rate.
In contrast, starting in early 2022, Capital One increased the 360 Performance Savings account rate. In fact, the rate went from 0.40% in April 2022 to 3.30% as of January 2023, and 4.35% as of January 2024.
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.
Like IRAs and 529 plans, there are a variety of investments you can buy within an HSA, and your options depend on the financial institution that holds your account. If you invest in CDs within your HSA, you can avoid paying taxes on the interest, provided you use distributions to pay for qualifying expenses.