How the Federal Reserve's Decision to Hold Rates Steady Affects Your Savings
We explore how the Federal Reserve's decision to maintain interest rates impacts your savings strategy.
Carla Ayers
Typically, when the Fed raises interest rates, banks increase the yields on savings accounts to attract deposits. Conversely, rate cuts often lead to reduced returns for savers.
With the Fed meeting next week and likely keeping rates steady, the interest rates on savings accounts are expected to remain relatively stable in the short term.
It means that high-yield savings accounts (HYSAs) and certificates of deposit (CDs) will likely continue to offer attractive annual percentage yields (APYs), with some exceeding 4%. For example, Axos Bank currently offers a HYSA with an APY of 4.66%. This is great news for savers looking to maximize their returns.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
Find the best high-yield savings options with this Bankrate tool:
While the Federal Reserve has currently paused rate changes, future decisions will depend on economic indicators such as inflation, employment data and the impact of recent trade policies.
Should the Fed decide to cut rates in the future, yields on savings accounts may gradually decline.
In the meantime, it makes since to strike while the iron is hot. If you're looking to grow your money effortlessly while outpacing inflation, a high-yield savings account can achieve both for you.
Another option, which can help you avoid falling rates completely, is to open a CD account. Since the APY on a CD account is fixed, if you lock up your cash in one now, you won't have to worry about your APY going down until the CD matures.
Just make sure you're comfortable with not being able to access your cash until the account matures.
The Fed's impact on savings rates
Beginning in March 2022, the Federal Reserve initiated a series of 11 interest rate hikes to combat soaring inflation, which peaked at 9.1%. This aggressive monetary tightening elevated the federal funds rate to a target range of 5.25% to 5.50%, marking the highest level in 23 years.
However, as inflationary pressures began to subside, the Federal Reserve shifted its stance, opting to hold interest rates steady in the first quarter of 2025.
This pause in rate hikes led to a stabilization, and in some cases, a slight decline in savings rates. Financial institutions adjusted their offerings accordingly, with some reducing the APYs on their savings products.
Looking ahead, it's unlikely the Fed will cut rates when they meet next week. This gives savers a chance to maximize returns now, while the season is favorable for doing so.
If you're looking to lock in a higher rate of return regardless of what the Fed decides, here are some of the top CD options to consider:
Related Content
-
Law Reversal Looming? Trump Eyes 2026 Gambling Winnings Tax ChangeTax Deductions It's no secret that the IRS is coming after your gambling winnings in 2026. But how long will that last?
-
Trump's Plan to Eliminate Income Tax: 7 Things to Know NowTax Policy The potential consequences of eliminating taxes in favor of Trump tariffs could impact everything from inflation to Social Security and might give some U.S. taxpayers pause.
-
The Delayed November Jobs Report Is Out. Here's What It Means for the Fed and Rate CutsThe November jobs report came in higher than expected, although it still shows plenty of signs of weakness in the labor market.
-
The Delayed November Jobs Report Is Out. Here's What It Means for the Fed and Rate Cuts
The November jobs report came in higher than expected, although it still shows plenty of signs of weakness in the labor market.
-
Where to Store Your Cash in 2026Set yourself up for success with these strategies.
-
Your Year-End Tax and Estate Planning Review Just Got UrgentChanging tax rules and falling interest rates mean financial planning is more important than ever as 2025 ends. There's still time to make these five key moves.
-
What Makes This Business So Successful? We Find Out From the Founder's KidsThe children of Morgan Clayton share how their father's wisdom, life experience and caring nature have turned their family business into a respected powerhouse.
-
Stocks Struggle Ahead of November Jobs Report: Stock Market TodayOracle and Broadcom continued to fall, while market participants looked ahead to Tuesday's jobs report.
-
I'm a Financial Adviser: The Fed's Rate Cuts Could Have Impacts You Might Not AnticipateUnderstanding how lower interest rates could impact your wallet can help you determine the right financial moves to make.
-
Past Performance Is Not Indicative of Your Financial Adviser's ExpertiseMany people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
-
I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
