Should you open a high-yield savings account before the next Fed meeting?

The Federal Reserve's next meeting – the final one for 2023 – is scheduled to take place on December 12-13. During this meeting, the Fed will make a decision on whether or not to change the federal funds rate. While the Fed does not directly set the rates for consumer savings, like high-yield savings accounts, the Fed rate does impact the rates that banks and financial institutions offer on these accounts.

With that in mind, some may wonder whether they should deposit their money into a high-yield savings account before the next Fed meeting. And, the good news is that opening a high-yield savings account before the Fed meets in December will likely boost your savings in the long run.

Start shopping for a high-yield savings account online today. 

Should you open a high-yield savings account before the next Fed meeting?

There are plenty of reasons to open a high-yield savings account before the Fed meets, including:

Rates are high right now

Right now, savers can find rates as high as 5.27% on high-yield savings accounts. And, online-only financial institutions tend to offer some of the highest rates, as these banks don't have costs for brick-and-mortar locations, and can pass those savings on to their customers in the form of higher deposit account rates. 

"When you start to think about folks who are dependent on interest rates to help supplement their incomes, we're seeing some very, very attractive rates," says Rich Guerrini, president and CEO at PNC Investments. "[Rates] that we haven't seen in a long, long time."

The main reason rates are so high right now is because the Fed has raised the federal funds rate repeatedly over the past 18 months to try and temper high inflation. When interest rates are high, people will generally spend less and save more, destimulating the economy and leading to less cash in circulation, which lowers the inflation rate. 

This has largely been a success. The inflation rate in June 2022 was more than 9%. In October 2022, it was just over 3%.

Take advantage of high rates and open a high-yield savings account today.

The Fed's December decision is up in the air

While the inflation rate has gotten better, it still isn't where the Fed wants it. Jerome Powell, the chairman of the Fed, has stated that the goal is to get the year-over-year inflation rate down to 2%. And, while the Fed has chosen to keep rates paused for the past two meetings, Powell said after the November meeting that all options remain on the table, including raising rates again, if the economic data supports it.

There is one more inflation report set to come out before the Fed's December meeting. Depending on how that data looks, the Fed could raise rates, potentially creating even better rates for high-yield savings accounts, or keep them paused. Absent an unexpectedly low inflation rate for November, experts do not anticipate a cutting of rates yet.

"We believe that it's kind of this idea of higher for longer," says Nicholas Covyeau, a certified financial planner with Swell Financial.

High-yield savings rates aren't locked in

With the potential for higher rates being available after the Fed meeting in December, you could be tempted to wait to open an account. This shouldn't be a concern, though. 

Unlike some products — think certificates of deposit (CDs) — high-yield savings account rates are variable. If you open a high-yield savings account today with a rate of 4.75%, only to see the Fed raise rate and your financial institution raise interest rates to 5.10%, your interest rate will also go up.

This means that opening an account today can only result in more money for you in the long run. You'll earn interest immediately, and through the power of compounding interest, that money will continue to work for you for as long as you have it in the account.

The bottom line

Opening a high-yield savings account before the next Fed meeting is a good idea if you want to get started saving for the future. Rates are high and are likely to stay high — and if they go up even further, you'll reap the benefits, even if you already have an account open. Compounding interest means that the money you save now will continue to work for you in the future, so opening an account immediately means more time for your account balance to grow.