Today’s high-interest rate environment has led to higher borrowing costs for consumers, but there’s a silver lining for savers: If you can find the right savings product, you may be able to earn a decent income from your spare cash. The Federal Reserve’s key interest rate is in a target range of 5.25% to 5.5%, the highest level in more than 22 years. The central bank’s base rate influences a variety of consumer products, including the annual interest rate charged on credit card debt and the annual interest rate banks pay on savings. Currently, high-yield savings accounts and certificates of deposit can offer APYs of over 5%, well above the national average of 0.63%, according to Bankrate.com. For many, high-yield savings accounts offer a source of passive income in a high-interest rate environment, but few seem to be taking advantage of it, according to a recent study by Santander US, “Paths to Prosperity.” The company found that nearly 6 in 10 middle-income Americans are parking their money in low-yield accounts, despite rising interest rates. Admittedly, it’s a slight improvement from the seven in 10 who did the same in the second quarter of last year. Santander U.S. CEO Tim Weness said many of those numbers point to a lack of education about how rising interest rates will affect savings and the types of savings products available to consumers. Additionally, the company found that four in five Americans believe opening a new bank account is a time-consuming burden. “There’s a general lack of awareness about the interest rates people are getting,” Weness said. “Or there’s a perception that the switching costs and friction of changing are more work than the benefits of higher interest rates.” “And I think both of those are false assumptions,” he said. The CEO advised investors to lock in higher interest rates six to 12 months before interest rates start to fall. Many investors expect rates to fall as soon as September. While interest rates on high-yield savings accounts rise and fall based on the Federal Reserve’s base rate, interest rates on fixed-term deposits can be locked in for a period, meaning there is no fluctuation in yields during the term. At Bread Financial, one-year term deposits were paying 5.15% as of Friday, while LendingClub is offering one-year term deposits at 4.4% annual interest and high-yield savings accounts at 5% annual interest. —CNBC’s Darla Mercado contributed to this report.
Cash offers a 5% yield, but many Americans still miss out on it
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