Earlier this month the Federal Reserve hit the pause button on interest rate hikes, providing a window of opportunity for savers to take advantage of elevated returns on deposit accounts.
At its meeting on May 1, 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 increases dating back to March 2022 in an effort to cool inflation. Here's what to know about the Fed's rate pause, and what it means for your savings.
What the Fed's rate pause means for you
While mortgage rates and loan payments have risen sharply as a result of the Fed's actions, savers have been big beneficiaries. Banks and credit unions have been forced to raise 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 if adjustments to the federal funds rate are warranted. The Fed signaled this is likely the peak for rates on savings vehicles like high-yield accounts and CDs.
Tips for savers
Here are ways savers can take advantage of current interest rates and maximize returns on their savings:
Shop around for the highest rates from online bank and credit unions. Rates can vary widely, so it pays to compare.
Consider building a CD ladder by buying CDs of different maturity terms like 6 months, 1 year, 18 months, etc. This allows you to capitalize on rising rates.
Look into money market accounts, which often have slightly higher yields than standard savings accounts.
Evaluate annual percentage yields (APYs) rather than just stated interest rates to understand the actual return factoring in compounding interest.
With this rate pause, now is an ideal time for savers to lock in attractive yields on their deposits before rates inevitably start trending lower again.