Top FDIC-Insured Savings Account Interest Rate vs. Inflation (2017-2023)

Whenever an article mentions the “average savings account rate”, I find that information useless. There are a lot of zeros in that average! But this Axios article has an interesting chart comparing the top savings rate vs. the rolling 3-month inflation rate from January 2017 through December 2023. That’s more applicable. Via reader Bill.

This serves as a good reminder that back in July 2021, the absolute top interest rate on an FDIC-insured savings account was redlining at… 1.00% APY. And that was actually a very good relative rate as the Vanguard money market fund with a yield of essentially zero (0.01% APY). Conservative savers had a very hard time earning hardly any interest and were falling behind inflation.

As of December 2023, you are now able to take zero principal risk and yet earn 5% from both the top savings accounts and the top money market funds. Every $10,000 should earn you $500 a year in interest. Every $100,000 should earn you $5,000 a year in interest. $1,000,000 will earn out $50,000 year, absolutely guaranteed. Best of all, that amount is finally a good margin higher than inflation at the moment.

But for those of us with long investing horizons, we must remember that over that long horizon, cash (as tracked by Treasury bills) has historically only just barely kept up with inflation. Sometimes cash wins, sometimes inflation wins, but over the long arc, it’s basically been a a draw. Even if we rate-chase and gain an extra 1% of “alpha”, that’s historically still not as good as stocks for the long run.

So while I still chase rates, 2/3rds of my investment portfolio remains held permanently in stocks. Here’s a chart of the S&P 500 total return for 2023 year-to-date (credit Ycharts). Up 25% as of this writing (12/14/23).

I did not predict that. This should also serve as a reminder that any 2024 S&P 500 forecasts you read this month are also garbage.