3 things to do (and 3 things to avoid) with interest rates paused
So much for a spring interest rate cut. Despite hope in late 2023 and early 2024 that interest rates would be cut this spring, the Federal Reserve on Wednesday announced that they were instead keeping rates untouched for now. That leaves the benchmark interest rate range between 5.25% and 5.50%. With reports for February and March showing inflation rising — and with it now sitting at 3.50%, more than a full point over the Fed's target 2% goal — it's not surprising that rates will remain frozen.
Against this backdrop, however, there are some important things to do to grow your finances and some other mistakes to avoid making to offset the negative repercussions of higher interest rates for longer. Below, we'll detail what you should (and shouldn't) do with interest rates paused again.
Start by opening a high-yield savings account to take advantage of today's high rates here.
3 things to do (and 3 things to avoid) with interest rates paused
Here are three strategic moves to make now with today's high interest rates stuck:
Open a high-yield savings account
High-yield savings accounts operate just like regular savings accounts do but with exponentially higher interest rates. With rates on some high-yield accounts over 5% right now, it makes sense to open one of these account types as soon as possible. You won't lose access to your money, but it will grow much more rapidly than if left in a regular account.
Explore your top high-yield savings account options here.
Open a CD
CDs come with slightly higher interest rates than high-yield savings accounts and the rate is locked — meaning that even if the rate climate adjusts downward, savers will still earn the same rate they opened their account with. That said, CDs may not be for everyone. If you want to access your money before the account has matured, you'll likely get stuck paying an early withdrawal penalty. But if you can afford to keep your funds locked away, the high returns and negligible risk are worth pursuing now.
See how much you could earn with a CD today.
Consider a home equity loan
Home equity loans come with significantly lower interest rates than credit cards or personal loans right now. And with interest rates on pause, this lower rate option is likely to remain attractive for homeowners for the foreseeable future. But because your home is the collateral in these borrowing circumstances, it's important to carefully consider your repayment ability before getting started.
Compare your home equity options online here.
And here are three things to avoid in today's rate climate:
Keeping your money in a low interest-earning account
The average interest rate on a regular savings account right now is a minimal 0.46%. Considering that both CDs and high-yield savings accounts come with rates many times higher, you're essentially losing money by keeping your money in a low-interest earning account. While this is never ideal, it's particularly problematic in today's inflationary climate, so consider making a move right away.
Adding more credit card debt
The average credit card interest rate hovers around 20% right now. That's a lot to pay for the benefit of borrowing, particularly when there are multiple other low-rate options to choose from. Adding more debt via this method then isn't cost-effective. And with interest rates on pause once again, it makes sense to avoid this credit option until the rate climate stabilizes.
Not locking in a mortgage rate
Today's mortgage rates are high, close to their highest level since 2000. While it may seem counterintuitive to lock in one of these rates, then, it's important to first take a step back. Interest rates won't stay paused forever, particularly if inflation continues to tick up.
There's a real possibility that the Fed could even bump rates up again before the year is out. While today's 7% rate may be high, it could become tomorrow's low option. So if you're planning on buying a home soon, consider locking a rate now. You could always adjust it before closing or refinance in the future.
Learn more about today's mortgage rates here.
The bottom line
With high interest rates stuck at their current level, many Americans would benefit from making some strategic moves now. This involves opening high-yield savings and CD accounts and using home equity loans for credit. Mistakes like keeping your money in a low-interest earning account, adding more high interest credit card debt and not locking in a mortgage rate should also be avoided, where applicable. By making these moves now, you'll be more protected from today's high rates and better prepared for a future in which rates are less of a concern.
