Americans Earned an Additional $235 Billion in Interest in 2023

 

Americans Earned an Additional $235 Billion in Interest in 2023 Thanks to the Fed

The Federal Reserve's decision to leave interest rates at a 23-year high for the sixth consecutive meeting has resulted in a significant increase in interest earnings for Americans. According to Lending Tree's (link unavailable), savers made $315.4 billion in interest in deposit accounts in 2023, four times the $78.7 billion earned in 2022.

This increase is attributed to the Fed's rate-hike campaign, which began in 2022 and made it possible for savers to earn inflation-beating yields on their US domestic deposits, including bank and credit union savings accounts, certificates of deposit, and money market accounts. Yields on Treasury bills have also been competitive with the higher rates banks are offering and are equally low-risk.

High-yield savings accounts have been particularly beneficial, with the average interest rate over 4% and the best rates offered by FDIC-insured online banks reaching between 5% and 5.5%. This means that savers can earn significantly more interest on their deposits, with a $10,000 savings account earning $500 in interest at a 5% rate compared to $50 at a 0.5% rate.

Money market accounts and money market funds have also generated yields competitive with high-yield savings accounts, although they have important differences. Money market deposit accounts are bank products and are FDIC-insured, while money market funds are an investment product and are not FDIC-insured. Certificates of deposit (CDs) are also a great option for savers who can leave their money untouched for a fixed period, with rates ranging from 5.35% for three-to-six-month CDs to 5.25% for three-year CDs.

Treasury bills and notes have also been a low-risk option for savers, with yields ranging from 5.4% for three-month T-bills to 5.05% for two-year notes. While the Fed's decision to slow the pace of its quantitative tightening program may have some effect on Treasury yields, it is unlikely to have a significant impact on short-term rates.

Overall, the Fed's decision to maintain high interest rates has resulted in a significant increase in interest earnings for Americans, with savers making an additional $235 billion in interest in 2023. This highlights the importance of shopping around for the best rates and considering options such as high-yield savings accounts, money market accounts, CDs, and Treasury bills and notes to maximize interest earnings.