The Federal Reserve chose to maintain interest rates unchanged on Wednesday. Despite this decision, there are still ways to increase the interest earned on your savings or lower the interest paid on your debts. Due to the volatile tariff policies of the Trump administration and strained relationships with allies, analysts have revised their US growth forecasts downward. The Fed also adjusted its outlook, anticipating weaker growth and higher inflation than previously expected, with uncertainty surrounding the impact of White House actions on the economy. They are considering two quarter-point cuts this year to address potential economic challenges.
Financial experts caution that lower interest rates should ideally be driven by decreasing inflation rather than economic weakness. Consumers and businesses should be cautious of the reasons behind interest rate changes. Consider taking steps to safeguard your finances in the current rate environment.
Here are some strategies to maximize your savings in the current interest rate climate:
1. Online high-yield savings accounts: Traditional brick-and-mortar bank savings accounts offer minimal returns, averaging just 0.6%. By opting for online high-yield savings accounts from FDIC-insured banks, you could earn over 4% interest, outperforming the current inflation rate of 2.8%.
2. Certificates of deposit (CDs): Investing in bank CDs or a CD ladder for short to medium terms can yield competitive returns, with rates ranging from 4.15% to 4.45% this week. Keep in mind that early withdrawal may incur penalties, and interest earned is taxable.
3. US Treasuries: Consider low-risk investment options like short-term Treasury bills or intermediate-term Treasury notes, with rates between 4.01% and 4.29% for maturities up to five years. Interest earned on Treasuries is tax-exempt at the state and local levels.
4. Money market funds: Opting for a federal money market fund with a reputable provider can offer lucrative cash yields while investing in secure assets like Treasuries and bank CDs.
By exploring these avenues, you can make the most of your savings and adapt to the current interest rate landscape effectively.
The current interest rate on money market funds is 4.14% as of Tuesday, based on the Crane 100 Money Fund Index. It’s important to note that money market funds are not FDIC-insured. However, if you purchase one through a registered broker-dealer insured by the Securities Investor Protection Corporation, you are covered for up to $500,000 in case of brokerage failure and inability to recover all your assets during liquidation.
For tax-advantaged investments that offer inflation-beating returns, consider AAA-rated municipal bonds issued by state and local governments. This week, rates on AAA-rated munis with maturities between three months and five years averaged between 2.65% and 3.36%, as reported on Schwab.com. Interest earned from municipal bonds is typically exempt from federal income tax and may also be exempt from state income taxes if issued by your state of residence.
When it comes to managing debt, the impact of potential Federal Reserve rate cuts later this year will vary depending on your type of debt and amount owed. Credit card interest rates averaged 20.09% as of March 12, down from the mid-December rate of 20.35% and the record high of 20.79% in August 2024. To tackle credit card debt, consider transferring balances to a 0% balance transfer card or negotiating for a lower rate with your credit card issuer.
For home loans, the fixed-rate 30-year mortgage averaged 6.65% for the week ending March 13, a slight decrease from the same period last year. Mortgage rates are influenced by movements in the 10-year Treasury yield, and potential rate cuts by the Fed could affect borrowing costs. When considering borrowing against your home, compare rates for variable rate home equity lines of credit and fixed-rate home equity loans. While these rates are higher than some forms of credit, they are generally more cost-effective options for home-related expenses.
When it comes to loans, shopping around for the best rates is key. Negotiating with lenders may not bring rates back to previous lows, but the savings can still be substantial. Whether you’re looking to build an emergency fund, save for retirement, or start a new venture, reducing borrowing costs can free up funds for other financial goals. If considering a Home Equity Line of Credit (HELOC) as a backup plan, inquire about associated costs to make an informed decision.
When considering car loans, factors to be aware of include closing costs, minimum withdrawal requirements, annual fees, and inactivity fees. Auto loan rates have slightly increased this year, reaching an average of 11.3% for used cars and 7.2% for new cars in February, according to Edmunds.com. Your interest rate for a car loan is determined by your credit score and loan term. Generally, a higher credit score and shorter term result in a lower rate, as per Bankrate. The Trump administration’s potential tariffs on imported cars and parts, as well as steel and aluminum, may impact car loan decisions. If tariffs are imposed, the cost of buying and financing a car may rise. Automakers may offer fewer financial incentives due to increased costs, leading to higher used car prices. Refinancing a high-rate loan with a significantly improved credit score could be beneficial, but calculate the savings first. Refinancing fees should also be considered. To stay updated with CNN news and newsletters, sign up at CNN.com.
