How to Make High Interest Rates Work in Your Favor

That’s not good news for people borrowing money, but it’s a great time to open savings accounts, says Ted Rossman, chief credit card analyst at Bankrate.

“The biggest benefit is for savers,” says Rossman. “You can still get more than 5% in a fully liquid, fully federally insured savings account. The best 1-year certificates of deposit also exceed 5%.”

After more than a decade of near-zero interest rates, savers now find themselves in an environment where they are rewarded for keeping their deposits in the bank. And with interest rates staying at their highest levels in decades for longer, savers have an extended window to take advantage of whatever the banks are offering.

In the United States, the average savings account pays just under 0.5% interest on deposits, according to data from the Federal Deposit Insurance Corporation. That’s almost eight times what it was three years ago, but it’s nothing compared to what some high-yield accounts currently offer, Rossman says. And few people take advantage of these offers, he says.

“We recently did a study and found that very few people earn even 4% of their savings,” Rossman says. “You can get more than 5.5% on the highest yielding savings account, but two-thirds of savers earn less than 4%.”

In order to get these great rates, consumers should shop around and consider opening new accounts, even if it means changing banks.

“It’s the inertia factor: you just stay with the same bank you’ve always used,” Rossman says. “But it’s worth opening one of these accounts and getting several extra percentage points on your emergency savings or other short-term money.”

This same logic works for certificates of deposit. Many banks offer high-yield promotional CDs if you can tie up money for a few months. Now is a great time to shop around for the most favorable terms and lock in those interest rates while they’re there, Rossman says.

High interest rates reward savers, but they also mean that borrowing money will remain expensive for the foreseeable future. Credit card rates, in particular, continue to hit all-time highs.

The average U.S. credit card rate has been above 20% since March 2023, but many cards have rates much higher than that, Rossman says. “Some of these cards are over 30%. Especially the store credit cards: dozens of them are over 30%.”

These high rates are brutal to borrowers with balances, leaving them “stuck in debt for many years because they have a high interest rate.”

For credit card users with high credit card bills, balance transfer cards remain great options for paying off these debts. Balance transfer cards are exactly what they sound like: they allow you to take the balance on one card and transfer it to another, often for a one-time fee, then give you an interest-free window of time to repay this balance.

Credit card issuers started offering balance transfer cards on very generous terms during the pandemic and, surprisingly, they haven’t stopped offering them, Rossman says.

“The fact that 0% balance transfer cards remain widely available is, at first glance, surprising,” says Rossman.

Many cards still offer long interest-free windows and low transfer fees. And as long as these conditions still exist, consumers would do well to take full advantage of them.

“A lot of banks are hoping that you get the card, get the bonus on time, but then you don’t pay it back on time. And your rate will go up significantly,” Rossman says. “But I think if you use it to your advantage, you can really get the edge.”

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