Federal Reserve decisions have a real effect on your money. A few simple steps can help you get the biggest benefit.
The Federal Reserve paused rates this week, the third time it’s done so this year. That may not sound too exciting, but it’s worth paying attention to because it has real consequences for your finances. The central bank’s decisions affect everything from how much you pay on outstanding debt to how fast your savings grow. By making some smart moves now, you can get the biggest benefit from its latest rate pause.
Read more: Fed Meeting Keeps Interest Rates High Why That Is a Big Deal for Your Finances
Make these 4 money moves now
Make the most of the Fed’s 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 on a CD. APYs have been falling even with rates paused, so if you’re thinking of opening a CD, now is a great time to do it.
“We’re already seeing CD rates slowly drop, and that’ll probably continue,” 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 ranging from a few months to several years. You need to leave your money in the CD for the entire term to avoid early withdrawal penalties. In exchange, the bank or credit union pays you a fixed return for the entire term based on the interest rate in effect when you open the CD. Some of the best CDs today offer APYs of up to 4.50%. With the Fed expected to cut rates later this year, locking in higher APYs now can protect your future earnings if rates drop.
✅ Open a high-yield savings account
A CD is a great home for money you don’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 do the trick. Often provided by online banks, high-yield savings accounts offer far better returns than traditional savings options available at major banks. The best 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 instance, you may pay a fee if you withdraw money from your account more than six times in any given month. The interest rates on high-yield savings accounts are variable, which means they tend to fall when the central bank cuts the federal funds rate. So you’ll want to open a high-yield savings account now to take advantage of the great APYs while you still can.
✅ Hold off on significant 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.
✅ Focus on paying down any debt
Debt, notably high-interest debt, can really 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 your 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 this 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 need to do is apply.
You can’t control what the Federal Reserve 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 get the biggest benefit from the central bank’s latest move.
