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The May inflation report, released today, offers a glimmer of hope to the millions of Americans fed up with rising prices. Although the decline was small, the report shows that inflation fell month-on-month, from 3.4% in April to 3.3% in May. And that drop was enough to prompt the Federal Reserve to leave interest rates unchanged at its June meeting.
The Fed has chosen to maintain interest rates frozen at 5.25% to 5.50% been trying to fight back against persistent inflation for almost a year now. Many experts predicted in early 2024 that the Fed would do just that Start lowering interest rates halfway through the year, but the improvement in inflation has been slower than expected. In turn, the Fed has stuck with expected rate cuts in exchange for a more aggressive strategy.
However, there is always a chance that rates will change in the future. For example, the Fed could choose to raise interest rates if inflation starts to rise again. But if inflation drops substantially over time, the Fed could cut rates at the same time. Now that the Fed’s rate hikes have been suspended for the time being, what steps should you take as a result?
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There are three big moves to be made in the money, while the Fed’s rate hikes are still on hold
Here are some important money moves you may want to consider now:
Open a short-term CD at a high rate
With Fed rates still at 23-year highs, one action you may want to take is to lock in a high short-term interest rate. certificate of deposit (CD). The current interest rate environment has led to short-term interest rates being higher than long-term interest rates in many cases. So, a short-term CD can be a smart way to grow your savings safely in this economy.
For example, many major banks and financial institutions offer short-term CDs rates that exceed 5.5% currently. That is generally a high rate, but more than ten times higher than the average interest on savings accounts, which is currently only 0.45%. So if you want to maximize your earnings, it makes sense to find the right short-term CD account.
And given that future rate hikes are still on the table, a short-term CD could make sense in other ways as well. For example, most short-term CDs ripen within a few monthsSo if inflation picks up again in the coming months and the Fed chooses to raise rates in response, you can move the money from your maturing CD to another CD at a higher rate.
So given today’s high CD interest rates and the possibility of future rate increases, opening the right short-term CD account could be a smart move while rates remain paused.
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Start earning top rates with a high-yield savings account
CDs aren’t the only interest-bearing accounts offering top rates right now. Favorable rates are also offered on certain types of savings accounts, such as savings accounts with a high return.
For example, many of today’s best high-yield savings accounts offer rates that rival the annual percentage returns (APYs) offered on CDs. It is not uncommon to find savings accounts with high returns currently more than 5%and in some cases the returns can be even higher.
With deposit rates so high, putting some of your money in a high-yield savings account will result in returns that far exceed inflation. And you also retain access to the money when you need it, which can be a significant advantage compared to CDs, which typically come with early withdrawal penalties that affect interest income.
Pay off expensive variable rate debt
Now that interest rates remain high across the board, this is possible high debts that you carry with you will cost you a lot of money in interest. So it’s a smart time to pay off any outstanding variable rate debt you’re dealing with so you can get rid of it sooner.
For example, the average credit card rate is fluctuates around 22% currently. Rates this high (or higher) make it easy for compound interest to cause your balance to spiral out of control. And if there are future rate increases, that rate could become even more expensive over time.
But trimming this debt burden won’t just save you money in interest. It will also improve your overall financial position, making it easier and more affordable to borrow money, should you need to, when interest rates eventually start to fall. So there are plenty of benefits to tackling those high debt levels now that the Fed has halted rate hikes again – and there are numerous benefits options to tackle your credit card debtat.
it comes down to
While it may make sense to tackle your high-interest debt and consider opening a short-term CD and high-yield savings account now, it’s also important to understand that every situation is different. In turn, you may want to crunch the numbers and weigh all the factors before making a move. This way, you can pursue the options that make the most sense for you, ensuring you’re positioned to achieve all your short- and long-term financial goals.
