If you have looked for the best interest rate for a savings account, no doubt you know that they can fluctuate greatly. Because they are based upon current federal reserve rates, which in turn are based on the strength of US currency. Since these types of interest yields are unpredictable, you are wise if you keep abreast of the rates of traditional banks as well as the rates of increasingly popular savings accounts online.

Many banks and other financial institutions offer a type of investment called “high yield savings accounts.” These types of banking services offer higher annual percentage rate than regular savings accounts do. This is likely to be attractive to a consumer who is interested in do a comparison before deciding on what type of account to choose for savings and investment. However, you should keep in mind that they usually require a greater minimum balance for the particular bank or institution you’re considering. You may have to commit to a higher starting deposit, a higher average daily balance, or a limited amount of transactions allowed per month. Sometimes, you may be required to have a checking account tied to the savings account.

A popular alternative to store front banks, online banking services offer rates of interest that, in most cases, are significantly higher than traditional brick-and-mortar banks. Some of these banking services include ING Direct, HSBC Bank, Emigrant Direct Bank, GMAC Bank, interest rates for these institutions are higher because there is much less overhead associated with an online-only bank. Therefore, they can pass savings from operational costs on to consumers like you by offering higher interest rates.

If you research online, you’ll find that there are many resources available to you if you want to compare interest rates and services between institutions, whether traditional store front, high yield, or online . You can easily do quick research for various types of saving products from a number of different financial institutions, as well as for versions of a savings account calculator, by going to such popular financial web sites as Financial Times and Motley Fool; you will be required to register, but it’s free. The calculator will help you estimate earnings on a particular investment based upon the initial investment, the length of time interest accrues, and the annual percentage yield received. With a little research you will be able to recognize and secure the best interest rate for a savings account online or at or at your local branch.

Current CD Bank Rates are on the rise. Back in May/June 2008, 6-month bank rates ranged from 3.35% to 3.50% and 1-year bank rates were around 3.70%. Now as the Federal Open Market Committee (FOMC) paused again and held the overnight rate (Fed Funds) at 2.00%, competition, demand, and inflation concerns are pushing short-term rates into the 4.00% to 4.25% range. The spread between Fed Funds and CDs is quite large at this time.

For some perspective, I researched historical Fed Funds. In 2005, Fed Funds were on the rise. The average rate was 3.25%. This compared to an average 6-month CD rate of 3.74% and 1-year rate at 4.19%. That is a spread of about 50 to 75 Basis Points (0.50% to .75%). In 2006, Fed Funds kept rising until they peaked at 5.25%. The average rate was 4.94%. The average 6-month bank CD rate was 5.28% and the 1-year was 5.40%. The spread narrowed to about 25 to 50 Basis Points. Matter of fact, the spread at one point was inverted. Fed Funds was higher than a 6-month CD Rate. This spread was maintained through 2007, as the Fed Funds was held at 5.25% through August. In September, the FOMC began lowering rates. They went from the 5.25% to our current 2.00% in a fairly short amount of time.

The FOMC (Federal Open Market Committee) is now caught between a rock and a hard place. The economy is still struggling so they are reluctant to raise the overnight rate. However, inflation has certainly been finding its way into our everyday lives. Once the Fed begins to raise rates the spread will most likely get smaller as banks will try to hold the line on their interest rates. The other most likely scenario is for the curve to flatten. Banks won’t want to pay more of an interest rate for any longer than they have too.

One thing to keep in mind is no one has a crystal ball. As current interest rates are rising, it probably makes sense to shorten up some of your CD terms and maybe even play the internet savings rate game (although it can be quite time consuming). However, don’t get caught holding all shorter-term CDs. You never know what can happen. Back in 2006 and 2007 people kept thinking rates would just keep going up and many didn’t do any longer-term CDs. However, those same people who have been facing rates in the mid 3.00% to low 4% are wishing they had done a few CDs with 5-year rates at 6.00%.