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Savings accounts
Higher rates mean consumers have to pay more to service their debt, but it also means banks pay higher premiums to savers. It’s one of the silver linings of the current rate environment, said Ted Rossman, chief credit card analyst at Bankrate.
“There has also been considerable stability at the top of this market,” Rossman said. “The highest savings rate right now is 5.35%.”
This cap rate is considerably higher than the national average for overall savings rates, which has been just below 0.6% for the past two months. But that overall average is also more than double what it was 12 months ago, when it was 0.23%.
Rossman added that many high-yield savings accounts, mostly available online, still pay close to or even above 5%. These types of accounts keep money easily accessible while getting solid returns and are great options for emergency savings.
Certificates of Deposit
Interest rates on savings accounts are higher than they have been in decades, but there has been a recent weakening in yields on certificates of deposit, data from the U.S. Federal Deposit Insurance Corporation shows.
According to the FDIC, the average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from its peak in December and January.
Despite the decline, CDs are good savings vehicles that avoid risk but still provide a return if you’re willing to tie up your money for a set period of time, Rossman said. The current environment will likely remain favorable for savers until the Federal Reserve proceeds with rate cuts.
“There has been considerable stability at the top of this market, although we expect some cuts to come,” he said. “These short-term rates don’t tend to move until the Fed moves.”
Until then, savers should make the most of it.
Credit cards
The flip side of the positive environment for savers is the expensive credit card market: Consumers who have balances on their cards face historically high rates. The average credit card rate has been well above 20% for the past 12 months and will continue to remain at that level for some time, Rossman said.
“Sometimes rates bounce around a little bit as offers come in and out of the market,” Rossman said, but “we have stabilized since the last rate hike in late July.”
The key for consumers to remember is that credit card debt is expensive, and that will be true even after the Fed starts cutting rates, he said.
“The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if rates went down a couple of points in a couple of years, they would still remain high.”
His best advice is to pay off any credit card debt as quickly as possible, if possible with the help of a balance transfer card, which allows consumers to transfer balances from one credit card to another at a low cost and for an extended period of no or low balance. interest.
The Fed won’t come to your rescue on credit card rates.
Ted Rossmann
Senior Industry Analyst, Bankrate
Rossman added that balance transfer card offers continue to be very favorable to consumers with low fees and wide repayment windows.
“The transfer market has been extraordinarily stable and strong,” he said. “This speaks to a strong job market and a strong economy. People are paying down these bills,” despite the fact that more consumers, on average, have more expensive debt.
Mortgage rates
While savings and credit card rates are very sensitive to Federal Reserve moves, the area that could see the most movement is real estate.
“Unlike some of these other products, mortgage rates tend to move ahead of the Fed because they tend to track the 10-year Treasuries,” Rossman said. “It’s more about investor expectations for the Fed and economic growth.”
This is reflected in the data. Mortgage rates peaked in October 2023 at around 8%, followed by a steady decline. And after a brief jump in February, they appear to be returning to the levels of early 2024, when a 30-year fixed-rate mortgage was about 6.6%.
“We think there’s a good chance that the average 30-year fixed-rate mortgage could be around 6% by the end of the year,” Rossman said, which would represent a much-needed reprieve for a highly competitive housing market that is still poorly supplied. .
High mortgage rates have prevented many sellers – who were locked into lower rates in years past – from putting their homes on the market. Lower rates could drive them to listing, Rossman said.
“The closer we get to 6% and then finally 5%, the more some people get off the fence and list their home and then the inventory gets better,” he said. “So this gives some relief on the pricing side for potential buyers.”