If you have a loan or Opened a savings account In the past year, you probably know how much interest rates have risen. Since starting to raise rates as early as 2022 to counter high inflation, the Federal Reserve has raised the range of its federal funds target rate from nearly zero to more than 5%.
For savers, this results in months of steady increases in savings account APYs — and the potential for their balances to grow by hundreds of dollars in interest over time.
But after 10 consecutive rate hikes, Inflation is slowly coming down And the Fed is beginning to signal that it may be ready to stop rates soon. Echoing comments made after the Fed’s meeting in early May, Fed Chairman Jerome Powell said last week that there would be a “careful assessment” of future rate hikes based on incoming data and the economic outlook.
“The risks of doing too much versus the risks of doing too little are becoming more balanced,” Powell said, hinting that a break may be in order. Now, CME Group’s FedWatch tool predicts a more than 70% chance that interest rates will remain the same after next month’s meeting.
You are relying on high yield savings Increase your balanceOr considering opening a new account to take advantage, you should know how a rate break could affect you.
Start saving today and find the best savings rate now.
What could a rate break mean for your savings?
Here are some ways a pause in rate hikes from the Federal Reserve could affect savers:
Prices will remain high
Even if there are no more rate hikes in the near future, that doesn’t mean rates will go back to where they were more than a year ago.
After the latest Fed rate hike, Chairman Powell reiterated that the effects of the Fed’s actions are lagging — because inflation is just starting to fall. So interest rates are unlikely to drop anytime soon, as the effects of rate hikes are still being seen.
This means that you will still earn Competitive interest rates If there is a rate break on your savings. Even accounts with variable interest rates, such as high-yield savings, will retain incentives for customers to keep rates high. So you can still benefit from higher interest rates for the foreseeable future — which today offers approx 4% to 4.5% or more.
This can be a good time for CDs
If rate hikes begin to decline, one option for savers is to maximize higher interest rates A CD lock.
Because CDs carry fixed interest rates that you must lock in for the entire CD term Best time to open CD When rates are at their peak. Although a rate break does not necessarily mean that rates will decrease in the near future, there is a chance that rates will begin to decrease at some point. As a result, locking a CD today can be a smart move.
If you want to maximize your interest earnings, you may want to consider a locking Short term CDs, since six-month to one-year CDs carry the highest rates today. However, you can open a long-term CD (such as one with a three- to five-year term) to make sure you’re benefiting from higher rates for as long as possible.
Explore the best CD rates available now and start earning more interest
Keep saving money
No matter what changes happen with interest rates, it’s always a good idea to contribute to your savings.
In general, you should at least have (or work towards) Three to six months worth of expenses In an easily accessible account, such as a high-yield savings account. This can help you cover unexpected expenses or weather financial difficulties.
Experts also believe that the United States has a strong potential A recession may set in This year. If you’re worried about economic uncertainty or your job is relatively unstable, you might even consider adding more to your savings. emergency fund.
If you’ve already saved money for your emergency fund or another goal, you can contribute any excess funds. And if you haven’t yet opened a high-yield savings account, you can increase your balance and support your financial future by starting to save today.
It’s impossible to predict with absolute certainty what the Fed might do at its next meeting in June, but officials have begun to hint that a rate break could come sooner rather than later. Even though rates aren’t increasing at the rate they are, it’s still smart to save money. And while rates may not go up, they’ll still be high — so you can benefit from that Interest you earn today On your balance.
Learn more about today’s top savings account rates here.
MoneyWatch: Managing Your Money
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