Maximize your earnings – and minimize your losses – by taking these steps now.
The Federal Reserve meets this week, and what it decides at this meeting has real consequences for your finances. The Fed’s interest rate actions affect everything from mortgage rates to savings account APYs. Take the right steps now and you can position yourself to reap the biggest benefit.
Experts expect the Fed will pause interest rates for a third time this year at its Federal Open Market Committee meeting on May 6-7. Here’s what that means for your money – and what you should do today to take full advantage.
Make these 4 money moves ASAP
Make the most of a Fed rate pause by doing these things now.
✅ Open a certificate of deposit
Banks tend to follow the Fed’s lead when setting CD rates. A rate pause means there’s still time to score a high annual percentage yield (APY) on a CD. APYs have been falling even with rates currently paused, so if you’re thinking of opening a CD, now’s the time to do it.
“We’re already seeing CD rates slowly drop, and that’ll probably continue if the Fed stays the course,” said Taylor Kovar, certified financial planner and CEO of 11 Financial. “The offers we saw last year are mostly gone, and I wouldn’t be surprised if rates keep drifting lower in the coming months. There are still some decent deals out there, especially with smaller banks or credit unions, but the window’s starting to close.”
CDs are unique deposit accounts that come in terms typically ranging from a few months to several years. You’ll need to leave your money in the CD for the entire term to avoid any early withdrawal penalties. In exchange, the bank or credit union will pay you a fixed return for the entire term based on the interest rate in effect when you open the CD.
Some of today’s best CDs offer annual percentage yields, or APYs, up to 4.50%. With the Fed expected to cut rates later this year, locking in your APY now can protect your earnings if rates drop.
✅ Open a high-yield savings account
A CD is a great home for money you won’t need to touch for some time. But what about your emergency savings? You want to keep these funds liquid while still earning the most interest you can on them.
A high-yield savings account can help. Often provided by online banks, high-yield savings accounts offer significantly better returns than the traditional savings options available at major banks. For example, today’s top savings accounts pay at least 10 times the national average savings rate.
It’s usually easy to access your funds in a high-yield savings account, although there may be withdrawal limits. For example, you may pay a fee if you withdraw money from your account more than six times in any given month.
Interest rates on high-yield savings accounts are variable, which means they tend to fall when the Fed cuts the federal funds rate. So you’ll want to open a high-yield savings account ASAP to take advantage of today’s great APYs while you still can.
✅ Hold off on big purchases
If you’re thinking about financing a new car or other large purchase, consider waiting until the Fed begins cutting rates again to avoid paying more in interest charges.
If you’re in the market for a new home, it’s also smart to hold off. Mortgage rates remain high, and experts don’t expect a Fed rate pause to bring them down.
✅ Pay down debt
Debt — especially high-interest debt — can significantly hamper your financial stability. When you spend a large amount of money on interest, that money is no longer free for savings, investments or even to cover daily expenses.
Paying down credit cards and other high-interest debt is a smart move in any rate environment, but especially while interest rates remain high. You may also want to consider a debt consolidation loan to combine your outstanding debt at a lower interest rate.
Keep in mind that now is the time to start shopping, not necessarily the time to open a new debt consolidation loan. For now, search for a reputable lender you’re interested in working with so that, when rates do start to fall, all you’ll need to do is apply.
You can’t control what the Fed does with interest rates, but you can take some smart steps to make the most of its decisions. Maximize your finances now, and you’ll be poised to benefit from the Fed’s next move.
