You may have heard recently that the Federal Reserve raised interest rates again. Specifically, they raised the target for the Fed Funds rate, putting it at 2.00% to 2.25%.
I can hear you yawning already… STOP!
Before you move on, ask yourself when was the last time you checked the interest rate you’re earning on your savings account. If it’s been a while, you may very well be leaving money on the table.
The rate we’re talking about is called the Fed Funds rate, and it’s the rate banks charge each other when loaning money overnight. It sounds boring, but it can affect the rates for many things from mortgages to savings accounts which impact normal every day folks like you and me.
Here is a nice summary of how it may affect you.
The Fed Funds rate was incredibly low (nearly 0%) for many years after the 2008 Great Recession and is still low by historical standards, but it has come up in the last two years. The bottom line is that if you’re still earning an abysmal interest rate on your savings account, you could be missing out.
Consider this. If you have $10,000 in a savings account earning only 0.2%, that’s $20 in interest each year. But now that rates are higher, many banks are offering 2% or more for certain types of savings accounts (especially if you focus on online banks).
That same $10,000 balance would earn $200 per year at a bank offering 2% interest. That is a difference of $180 each year. It may not seem like a lot, but over time those little differences can add up. Over five years, that small difference means about $1,000 extra dollars in your account.
So, take a look at your last bank statement and see what interest rate you’re earning. If your rate starts with a zero before the decimal point, you may want to explore your options. Here is a good place to start.
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