Is a high-yield savings account worth it with interest rates paused?

Chances are that you've heard the Federal Reserve kept interest rates the same for the second time in a row. The target federal funds rate sets the foundation for the interest you earn on savings and other deposit accounts. It's also a deciding factor in the interest you pay on credit cards, mortgages and other loans. 

That means when the Fed increases its target federal funds rate, debt costs more and returns on savings and other deposit accounts grow. When the Fed reduces its target rate, debt becomes cheaper and returns on deposit accounts fall. 

So, what does the interest rate pause mean for your savings? Perhaps more importantly, is it still worth opening that high-yield savings account you've been considering? 

Spoiler alert: High-yield savings accounts are generally still worth it. Open yours here now. 

Is a high-yield savings account worth it with interest rates paused?

Even with interest rates paused, it's worth opening a high-yield savings account, says Shane Cummings, CFP, CEPA, AIF, wealth advisor and the Director of Technology/Cybersecurity at Halbert Hargrove. High-yield savings accounts are "one of the easiest ways to boost your return without taking on more risk," he says. That is, as long as the new account is FDIC or NCUA insured. 

Here are a few reasons why high-yield savings accounts are still worth it while interest rates are paused:

Interest rates are still high 

The interest rate pause means that the Federal Reserve hasn't increased or decreased its target federal funds rate. That means savings account interest rates aren't likely to rise or fall in the near term. Then again, considering today's interest rate environment, that's good news for savers.

Interest rates are paused, but they're still high. 

Some of the top high-yield savings accounts today are paying between 4.25% and 5.27%. That's much better than putting your money in a traditional savings account with an average interest rate of around 0.46%. 

Open a high-yield savings account now to take advantage of today's high-interest rate environment. 

Interest rates could head up in the future

Interest rates may be paused for the time being, but that won't last forever. The federal funds rate is cyclical. During high inflation cycles, the Federal Reserve increases rates. When inflation slows to a crawl, the Fed decreases rates. 

So, the interest rate pause is a temporary occurence. 

When the pause ends, there's a strong argument that rates will begin to tick up again. After all, third quarter GDP grew at a rate of 4.9% year-over-year, suggesting inflation is still a cause for concern. 

When you open a high-yield savings account now, you'll have the ability to benefit from any future rate hikes that may be on the horizon. After all, when the federal funds rate goes up, savings rates tend to follow. And since the rates on these account types are variable by opening one now you'll be best-positioned to earn a higher APY if and when rates tick up again.

Traditional savings accounts don't keep up with inflation 

This may come as a surprise, but if you're using a traditional savings account, you're losing money - you're losing the value of your money that is. That's because returns on traditional savings accounts usually fail to keep up with inflation. 

"High-yield savings accounts can be an attractive option for individuals seeking a better return on their savings compared to traditional savings accounts," says Cameron Burskey, senior partner at Cornerstone Financial Services in Southfield, Michigan. 

When compared to traditional savings accounts, high-yield savings accounts "often offer high interest rates," Burskey says, "which can help savings grow faster."

Many high-yield savings accounts come with returns that surpass the current inflation rate. So, these accounts offer a safe place to store your money while you earn a positive inflation-adjusted return. 

If you're not making money, you're losing money. Make money with a high-yield savings account today. 

The bottom line

High-yield savings accounts are still an effective option for earning an impressive return on your savings, even with interest rates paused. The best options offer returns at and above 5%. They also come with FDIC or NCUA insurance for balances up to $250,000 - keeping your idle money safe.