With the recent increase in the federal funds rate in July, interest rates have reached their highest point in 22 years. While this development may be a challenge for borrowers, it presents an opportunity for savers seeking higher yields on their cash savings.
The Federal Funds Rate's impact on annual percentage yields (APY) has led to a surge in interest surrounding certificates of deposits (CDs) and other savings products.
Inflation Slowdown Could Impact Future Rate Hikes
According to CNN, The Federal Reserve has indicated the possibility of yet another rate increase later this year, although it might be one of the final adjustments. As the pace of inflation shows signs of slowing down, the Fed could potentially pause its rate hikes within the coming months. In such a scenario, individuals with cash savings might consider securing the current rates by investing in certificates of deposit.
Commonly referred to as CDs, these financial products enable individuals to earn a fixed interest rate over a designated time frame. Generally, withdrawing funds prematurely from a CD results in penalties; however, this arrangement guarantees a steady yield until the CD matures. This contrasts with savings accounts, where interest rates are typically linked to the federal funds rate.
One notable player in the field of high-yield CDs is the Bread Savings CD, offered by an online-only bank. As of now, the bank is offering an attractive 5.35% APY on their 1-year CD. This rate has prompted many to consider the Bread Savings CD when comparing their options.
Bread Savings offers CDs with durations of up to five years, with higher rates offered for shorter terms. For instance, the current APYs on various CD terms are as follows:
- 1-year CD: 5.35% APY
- 2-year CD: 5.00% APY
- 3-year CD: 4.75% APY
- 4-year CD: 4.50% APY
- 5-year CD: 4.35% APY
These rates make the Bread Savings CD an appealing choice for those who wish to lock in favorable yields for the long term. Despite lower rates for longer terms, the 4.35% APY on the 5-year CD offers a low-risk option for earning consistent returns.
However, potential investors should take note of certain stipulations associated with opening a Bread Savings CD. A minimum deposit of $1,500 is required, and though there are no monthly maintenance fees, a $5 charge applies to paper statement requests. CD accounts automatically renew at maturity, with a 10-day grace period for cashing out.
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Bread Savings CD vs. Established Banks: Rate Comparison
The bank emphasizes that all deposits are FDIC-insured while interest on CD accounts accrues and compounds daily. Customers can deposit up to $1 million per account and up to $10 million per customer.
Comparing Bread Savings CD rates with other banks' offerings reveals that the bank's rates are competitive, especially in comparison to online banks. For instance, Quontic Bank offers rates such as:
- 6-month CD: 5.05% APY
- 1-year CD: 5.30% APY
- 3-year CD: 4.40% APY
- 5-year CD: 4.30% APY
Bread Savings also stands out against established banks like Barclays, as it boasts higher rates for several terms. However, Barclays' 5-year CD offers a 4.50% APY, presenting a slight advantage.
While considering opening a Bread Savings CD is a prudent move for those seeking to capitalize on current interest rates, it's essential to undertake thorough research. Comparing rates and offerings from various banks ensures individuals secure the best returns on their cash savings.
Furthermore, those needing more immediate access to funds might explore high-yield savings accounts as an alternative to CDs. The UFB Premier Savings account, currently offering a 5.06% APY, could be a viable option for those seeking both flexibility and high yields.
