Where to Move Your Money Before the Next Fed Meeting
The Fed held rates steady in June. I'll show you the savings accounts and CDs I'd consider to make the most of today's rates.
If your savings balance hasn't grown much recently, you're not alone. Many Americans are finding that even though they're earning interest on their cash, rising prices continue to erode purchasing power. With inflation running at 4.20%, money sitting in a traditional savings account may not be keeping pace with the cost of everyday expenses.
The Federal Reserve left interest rates unchanged at its June meeting, citing ongoing inflation concerns and economic uncertainty. While the next Fed meeting isn't scheduled until July 28-29, policymakers have signaled they remain cautious about cutting rates too quickly.
In the meantime, with many savings rates lower than inflation, I'll show you a few strategies to help you reach your savings goals while minimizing inflation's impact.
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Certificates of deposit (CDs)
CDs are an effective, reliable way to earn guaranteed returns of up to 4%. And if you have more than $50,000 to store in one, consider a jumbo CD. Jumbo CDs are the only CDs currently outpacing inflation.
Read Four CDs to Check Out Before a Fed Rate Cut to get recommendations from Kiplinger's staff.
The other benefit to CDs is that 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 down the road, that won't affect you because it has a fixed interest rate.
The biggest potential drawback is the penalties you might incur if you cash in your CD before 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.
Use this tool, powered by Bankrate, to find some of today's top-earning CD rates:
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 while retaining access to the funds, with check-writing privileges and/or debit cards. The interest rate on these accounts is variable and can go down or up after you open the account.
Here are our top picks:
- Brilliant Bank: 4.00%
- All America Bank: 3.85%
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, without fear of incurring fees for removing some of your money.
However, 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're on track to drain your emergency fund, close the account and cut your losses before the fees accumulate.
High-yield savings accounts
High-yield savings accounts help you reach your goals quickly. I recommend an online account because they have the best returns with minimal fees.
You can set one up in a matter of minutes and keep this money separate from your other accounts. This allows you to continue to work towards your goals without impulse purchases getting in the way.
Right now, the only account I suggest is Newtek Bank. You'll earn an APY of 4.20%, keeping you on pace with inflation.
The two most significant downsides of high-yield accounts are monthly fees and variable interest rates, but there are ways to mitigate those drawbacks.
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 offers, and if you notice that your savings account is falling faster than others, consider shopping around for a better account.
Considering a high-yield account? Read Is It Worth Getting a High-Yield Savings Account Before the Next Fed Meeting?
What the June Fed meeting means for savers
The Fed kept rates the same when they met in June. While inflation is higher than what most savings accounts offer, you still need a place to store your cash to reach your savings goals.
These strategies help you achieve this in the interim. Like the Fed, I recommend adopting a wait-and-see approach, with the peace of mind that if prices drop in the future, you're in a prime position to improve the purchasing power of your cash.
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