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.
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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:
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