Here’s why savers should find an APY that surpasses the rate of inflation

Written by

Edited by

Published on December 18, 2024 | 3 min read

Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy.

Halfpoint Images/Getty Images

Senior couple sitting at the kitchen table looking at digital tablet and recalculating their expenses.

Multiple Federal Reserve rate cuts this year caused most top-savings yields to decrease during the past few months. However, when it comes to annual percentage yields (APYs) beating inflation, savers will likely continue to win out, at least for the near term.

These days, rates on high-yield savings accounts are outpacing the rate of inflation:

Top APY on a high-yield savings account: 4.85%
Current inflation rate: 2.7%

For savers earning such a rate, not only is there peace of mind from having cash on hand for emergencies or other savings goals, but also, their money isn’t losing purchasing power in such an account.

Here we’ll delve into the ways high inflation has impacted savings account rates, as well as how you can ensure you’re reaping the benefits of a high APY.

Inflation’s ripple effect on savings account rates

From 2022 to 2023, in an effort to bring down soaring inflation, the Federal Reserve gradually hiked its benchmark federal funds rate from a range of 0-0.25 percent to 5.25-5.50 percent. Top-yielding banks and credit unions tend to move in lockstep with the federal funds rate, so many financial institutions increased their APYs in turn.

Over time, inflation has decreased from a high of 9.1 percent in June 2022 to 2.4 percent in September 2024 — and it was nearing the Fed’s target rate of 2 percent so the Fed rate began to lower rates.

Overall inflation rates moved up slightly in October (2.6 percent) and November (2.7 percent) but the Fed continued to cut rates. Right now, rates on top high-yield savings accounts are still high, at levels savers haven’t seen in more than a decade, outside of the current rate cycle.

Currently, the difference between the highest-yielding savings accounts and the rate of inflation is around 2.15 percentage points, or 215 basis points. Even if savings account yields decrease as a result of the Fed cutting rates, as long as inflation doesn’t nudge up a lot more, you’ll still be able to beat it with a top-yielding bank account.

Why it pays to shop around for a high APY

Not all savings accounts are created alike, when it comes to APY. While some banks offer a 4 percent APY or a similar yield, the national average savings account rate is only 0.57 percent APY. What’s more, various large brick-and-mortar banks only pay a minuscule 0.01 percent APY on savings accounts.

The difference between earning a high yield and a low one can be staggering. For example, $10,000 that earns 4 percent APY would earn around $400 in interest per year, compared with $1 in interest from $10,000 in an account that earns 0.01 percent APY. (Note that most savings accounts earn a variable APY, meaning banks can raise or lower it at any time.)

Where to find the best high-yield savings account

Ultimately, the best rates on deposit accounts can generally be found at online-only banks. Some online banks offer higher APYs as a way to draw in customers from established brick-and-mortar banks, which often pay lower rates.

Credit unions are another common source of high APYs. Because they’re not-for-profit organizations, profits may be distributed among members by way of high yields on savings accounts.

In addition to APY, pay attention to factors such as minimum deposit requirements when shopping around for the best savings account. It’s also important to find an account with federal deposit insurance, as well as one that doesn’t charge monthly service fees.

CDs as an alternative to savings accounts

Certificates of deposit (CDs) can be another source of high rates from your bank or credit union. While Fed rate cuts could trigger banks to lower their APYs, opening a fixed-rate CD generally guarantees you’ll earn the same rate throughout the CD’s entire term — even if your bank lowers the yields on new CDs it issues.

In exchange for the guaranteed rate, however, the bank wants to hold onto your money for the duration of your CD’s term. As such, withdrawing the money before the CD matures will likely result in an early withdrawal penalty. This can eat into your interest and possibly even your balance.

Before dedicating money to a CD, make sure you won’t need the funds before the CD matures. Also, make sure you have money set aside for emergencies in a liquid savings account.

Bottom line

The top savings APY has been outpacing the rate of inflation since March 2023. As such, it’s a good time for savers, as long as the money is in a high-yielding account. Ultimately, the right savings account for you offers a high APY and a minimum deposit requirement you’re comfortable with, without charging service fees that would eat into your balance.