Savings accounts growing in popularity as investments amid higher interest rates

For more than a decade after the Great Recession, savings accounts fell out of favor as investment tools due to low annual returns. But amid the Federal Reserve’s historic tightening cycle, part of its efforts to crush inflation spurred by the COVID-19 pandemic and other causes, bank savings accounts are increasingly profitable.

“Oh my gosh, it’s night and day,” Jamie Cox, managing partner for Harris Financial Group, in Richmond, Virginia, said of the change in savings account yields from just a year or two ago. “If you think about how much people are making in savings accounts now versus what they were two years ago, it’s 300% at a minimum and more like 400% on average.”

Cox noted that holders of savings accounts and CDs might be in for a surprise come Tax Day. He said that because of the excess interest that people are earning, there are going to be a lot of high savings deposit interest earners who are going to be asking their accountants why they suddenly owe much more in taxes.

While savings accounts have certainly become more profitable than just a year ago, Cox said he is still advising people to invest their money in Treasury bills or money market accounts. Both are still very safe options with little risk and higher rewards, he said. Thomas Mathews, a finance professor at Florida Gulf Coast University, told the Washington Examiner that while savings rates and CD rates have risen, and relatively quickly given the Fed’s action over the past several months, there are still other investment vehicles that consumers should find more attractive. He noted Treasury bills in particular.

But will the yields on savings accounts go higher, or have they reached their zenith? A lot of that is going to depend on what the Fed does next. The Fed’s last rate increase was at its last meeting in July, driving interest rates up by another quarter of a percentage point. All eyes are now turning to what the Federal Open Market Committee will decide at its next meeting later this month.

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