Why the Fed’s Rate Freeze Is Good News for Savers
Earlier this month, the Federal Reserve pressed the pause button on raising interest rates, allowing savers to take advantage of increased yields on deposit accounts.
At its May 1 meeting, the Federal Open Market Committee (FOMC) decided to keep the federal funds rate unchanged at a range of 5.25% to 5.5%. This follows a string of 10 consecutive rate hikes starting in March 2022 in an attempt to cool inflation. Here’s what you need to know about the Fed’s rate freeze and what it means for your savings.
What does the Fed rate pause mean for you?
Although mortgage rates and loan payments rose sharply as a result of the Fed’s actions, savers received the big benefits. Banks and credit unions were forced to increase yields on savings accounts , money market accounts, and certificates of deposit (CDs) to attract and retain deposits.
The FOMC meets approximately every six weeks to assess economic conditions and determine whether adjustments to the federal funds rate are warranted. The Fed has signaled that this is likely the peak in rates on savings instruments such as high-yield accounts and certificates of deposit.
Tips for investors
Here are ways savers can take advantage of current interest rates and maximize the return on their savings:
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Find the best rates from online banks and credit unions . Prices can vary greatly, so it makes sense to compare.
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Consider building a CD ladder by purchasing CDs with different maturities, such as 6 months, 1 year, 18 months, etc. This will allow you to take advantage of rising rates.
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Look into money market accounts, which often have slightly higher yields than standard savings accounts.
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Consider annual percentage yield (APY), rather than just stated interest rates, to understand the actual yield factor when compounding.
Given this pause in interest rates, now is the ideal time for savers to lock in attractive returns on their deposits before rates inevitably start to fall again.