As rates creep upward, in part because of the Federal Reserve raising interest rates, we’re starting to talk about how savings accounts may one day offer 7% APY.
Is that day today?
As of May 10th, there isn’t a single bank that offers 7% APY on a savings account. The highest we’ve seen is in the 5% range.
There is, however, one credit union but there is a big catch.
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Landmark Credit Union – 7.50% on up to $500
Landmark Credit Union offers a Premium Checking account that offers 7.50% APY on balances up to $500 – that’s it. The catch is the low balance amount, plus it requires electronic statements and direct deposit of $250+. It’s a lot of requirements just to get a high interest rate on such a low dollar amount.
⚠️ On balances above that, you earn 0.11% APY – which is terrible. If you have a balance above that, you’re better off with another account because of the huge disparity in interest rates.
Consider this – 7.50% on $500 is just $37.50 a year. $3.13 a month.
Is that worth it? (no)
FWIW, Landmark Credit Union was founded in 1933 in and they’re part of the CO-OP Shared Branches, so you can bank at 5,000 locations even though their geographic footprint is small.
Alternatively, there’s another credit union, Digital Credit Union, that offers 6.17% APY on up to $1,000. The remaining balance only earns 0.25% APY. So it’s over 6% but it suffers from the same limitations.
You’re almost better off with a high yield savings account than one of these low balance credit union offers.
When Will We See 7% Interest Savings Accounts?
I think reaching that lofty number will be difficult when it comes to savings accounts unless we see the Federal Reserve increase interest rates significantly. We’re already seeing a slow down in the rate of the increases, with the latest increases at just 25 basis points, and the target rate sitting at 5.00% - 5.25%.
The difference between the target rate and the prevailing interest rate on online savings accounts is very small, so we’d have to expect rates to go much higher for savings accounts to offer that.
My gut feeling is that we won’t be seeing 7% interest on savings rates unless something drastically changes in the U.S. economy… and that would be a bad thing honestly.
Watch CD Rates for Clues
Whenever we see rates go up, the products leading the way in interest rates tend to be certificates of deposit. Certificates of deposit are great for both banks and consumers because they offer certainty – you know that if you open a CD at a certain rate, you get it for the term.
Savings account rates can fluctuate. If you open an account with a 5% rate, it’s no guarantee it’ll stay that way. It can change at any time. With CDs, you can’t withdraw your funds before the term but you know what rate you’ll get.
No Penalty CDs have become popular lately too because they offer flexibility (you can close them early without paying a penalty) and high rates. You can see if there are 6% CD rates right now (but as of May 10th, 2023, there aren’t any).