The Fed has paused interest rate hikes. Here's why you should open a CD now.
Following ten rate hikes dating back to March 2022, the Federal Reserve had some welcome news on Wednesday: They're pausing interest rate hikes. The benchmark interest rate will remain unchanged at a range between 5% and 5.25%.
While the pause won't be permanent, it's still better than seeing rates head upward. And it could provide some much-needed relief for borrowers. Rates on everything from mortgages to credit cards to personal loans have been higher in recent months than they had been in years.
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent," the Fed said when announcing the pause. "Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy."
While the rate environment will remain unchanged for the short term (the Fed won't meet again until the end of July), there are some steps Americans should take now to grow their savings. Following the rate pause, many savers would benefit from locking in a certificate of deposit (CD) account now.
Start by exploring your CD options here to see how much more money you could be earning.
Why you should open a CD now
Interest rates on CDs are tied to the Fed's rate activity. As rates rise on mortgages and credit cards they also move up on savings vehicles like CDs and high-yield savings accounts. Because rates have been so high in recent months, CDs have been a smart place to park your money. If you shop around you could easily find a CD offering a 5% APY with no fees to eat away at your earnings.
But now that rates are at a standstill, that 5% is likely the maximum you'll be able to get, at least for the foreseeable future. And if rates stabilize or eventually drop later in the year APYs will head south with it. This is why you should open a CD now. Unlike rates on high-yield savings accounts, rates on CDs are locked in at the APY offered when you opened the account. So if the larger rate environment stays as is or goes down, you'll still enjoy the benefits of the high rate you secured when the climate was different.
But you'll need to act relatively quickly. No one knows for sure where the rate environment is heading going into the second half of the year. So, secure a high interest rate CD now and start earning more money today.
Other CD benefits to know
A higher interest rate isn't the only reason to open a CD now. Here are two other CD benefits to know:
The money is protected
The money you put into a CD is FDIC-insured up to $250,000 per account per bank. So you won't have to worry about any banking failures. And if you have more than $250,000 to deposit you can spread it out among multiple CDs, preferably with different expiration dates and rates (also known as a CD ladder strategy).
But the money in the account will also be protected against a constant cycle of deposits and withdrawals. Because the money is locked away — and you'll need to pay a penalty to get to it — the money you put into a CD will be better protected than if you had left it in a savings account with easy access.
Minimal fees and penalties
Because the money you deposit into a CD won't be touched (unless you're willing to pay a hefty penalty) savers will encounter minimal to no fees or penalties for maintaining their account. There are multiple online CDs that won't charge for account upkeep, letting your money grow unblemished at that higher interest rate. And because you know the rate is locked in, you'll better be able to budget and manage expectations for when the CD term ultimately expires.
The bottom line
CDs have been an attractive way to grow and protect your savings in an otherwise volatile economy. But with the Fed's decision to finally pause interest rate hikes, the window of opportunity to maximize these types of accounts may be closing. That's why it makes sense to open an account now — and lock in a high rate — before the Fed makes any changes that could affect the rate you can secure. Start earning more money (and protect the money you've already saved) by opening a CD now.
