Sean Jackson
Now is an excellent time for savers to lock in a great interest rate. While the Federal Reserve meets this week, fears of how tariffs impact inflation will likely lead to another meeting without rate cuts.
When the Fed cuts interest rates, debt tied to variable interest rates should become cheaper to service and payoff, such as credit cards, adjustable-rate mortgages or home equity lines of credit (HELOCs) and some private student loans. The downside is that if the Fed reduces rates again in the future, we will likely see another slight dip in the highest savings rates.
Now is the time to make decisions about your short-term savings goals and where to grow your money. Remember that the longer you wait, the lower the available savings rates will likely be.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here is where you should consider parking your cash before the lower rates take effect:
Certificates of deposit (CDs)
CDs are an effective, reliable way to earn guaranteed returns of over 4%. Many banks offer 5-year CDs with rates exceeding 4%, and some 1-year CDs offer rates well closer to 5%. Read Four CDs to Check Out Before a Fed Rate Cut to get recommendations from Kiplinger's savings expert, Erin Bendig.
The other benefit to CDs is the rate you lock in is the rate you'll have throughout the term. If you get a CD now and the Fed cuts rates over the summer, that won't impact you because it is a fixed interest rate.
With this in mind, use this tool from Bankrate to find some of the top-earning CD rates:
The biggest potential drawback is the penalties you might incur if you cash in your CD prior to maturity. If you are apprehensive about locking up your money, you can buy a no-penalty CD and avoid angst and fees. These CDs usually pay slightly lower rates to offset the bank's risk of early redemption. Otherwise, this FDIC-insured savings opportunity is the best place to park your cash as rates come down.
Money market accounts
Money market accounts combine the best features of savings and checking accounts. You earn a higher rate than a traditional savings account but retain access to the funds with check-writing privileges and/or debit cards. The interest rate on these accounts is variable and can go down after you open the account.
Accessibility to your funds is why I highly recommend these types of accounts to hold your emergency funds. You can easily pay your mortgage, car insurance or medical bills if a financial emergency arises.
Watch out for the minimum balance requirements that are common for money market accounts. Many accounts have minimum balance requirements to open an account and a minimum closing daily balance. To avoid these fees, crunch the numbers, and if you are on track to drain your emergency fund, close the account and cut your losses before the fees accumulate.
High-yield savings accounts
All savings accounts earn interest. The amount of interest depends on which account you choose. A traditional savings account averages only a 0.60% annual percentage yield (APY).
In comparison, the APYs on top high-yield savings accounts are 4% and above, according to Bankrate.com. That's why I recommend high-yield savings accounts for everyone regardless of the Fed rate; even if rates fall in the future, a high-yield account will still be one of the best and safest places for your savings.
The two most significant downsides of high-yield accounts are monthly fees and variable interest rates, but there are ways to mitigate those drawbacks. We can recommend at least 10 no-fee high-yield accounts that are currently paying over 4%.
Whether overall rates increase or decrease, high-yield savings accounts with the best yields tend to outperform their competition consistently. Monitor the rate your account is paying and if you notice that your savings account is falling faster than others, consider shopping around for a better account.
If you need more encouragement to open a high-yield account, read Is It Worth Getting a High-Yield Savings Account Before the Next Fed Meeting?
Bottom line for savers
If CDs, high-yield accounts or money market accounts fit into your short-term savings goals, this is a good time to get them. The Fed won't likely cut rates at their meeting this week, giving you time to secure an excellent rate that outpaces the CPI inflation rate.
Related Content
-
Trump’s Tax Cut Risks Your SNAP, Medicaid BenefitsTax Cuts The GOP budget blueprint could slash lifesaving programs for millions of U.S. households.
-
Can Trump Fire Powell? A Supreme Court Case Could DecidePresidential posts threaten to overwhelm decades of precedent and tradition, whatever the nine justices decide.
-
What Are AI Agents and What Can They Do for You?AI agents promise to be the next big thing in artificial intelligence, but what exactly do they do?
-
Should You Buy an iPhone Now Before Tariffs Hit?Looming tariffs can make an iPhone purchase seem urgent. Here's what to do if you need another phone but want to save money.
-
Here's When a Lack of Credit Card Debt Can Cause You ProblemsUsually, getting a new credit card can be difficult if you have too much card debt, but this bank customer ran into an issue because he had no debt at all.
-
Reminder: The Basics of Using HSA FundsHealth savings accounts (HSAs)can help you cover out-of-pocket medical costs. Just make sure you understand the rules and keep records of qualifying expenses.
-
A Checklist for High-Net-Worth Individuals: How to Protect and Grow Your WealthA strategic guide to managing, preserving, and expanding your wealth for long-term financial security.
-
Earn a 50% Discount to The Cultivist With Capital One Venture XTour some of the world's top art museums for less when you use your Capital One Venture X card to score a 50% discount to The Cultivist.
-
Going to College? How to Navigate the Financial PlanningCollege decisions this year seem even more complex than usual, including determining whether a school is a 'financial fit.' Here's how to find your way.
-
My First $1 Million: Literacy Interventionist, 59, ColoradoEver wonder how someone who's made a million dollars or more did it? Kiplinger's new My First $1 Million series uncovers the answers.
