(CNN) — As it has done at every meeting this year, the Federal Reserve Open Market Committee on Wednesday decided to leave the central bank’s key overnight lending rate unchanged.
The fed funds rate normally influences – directly or indirectly – movement in the interest rates consumers earn on their savings and pay on their debts.
But in good news for savers, even though the Fed rate hasn’t budged in seven months, other factors have pushed interest rates higher on some low-risk vehicles that can provide healthy returns for your cash.
For those with loans or seeking them, the Fed standing pat may mean the cost of your debts won’t move much. But it is a reminder to seek ways to minimize the interest you’re paying.
Your savings
Here is where there are opportunities to get – and in some, cases lock in – an inflation-beating rate in the coming months.
US Treasuries: Rates on Treasury bills and notes have been rising this year amid concerns over mounting US debt and the US-Iran war’s effect on geopolitical instability and oil prices. Traders also have been pricing in at least one Fed rate hike this year.
At Schwab.com on Wednesday morning, average yields to maturity were over 4% on Treasuries with durations ranging from 6 months through 10 years. For instance, the 2-year note averaged 4.5%. And on the very long end, the yield on the 30-year Treasury was trading Wednesday near its 19-year high.
Income earned on Treasuries is exempt from state and local taxes.
Short- and medium-term paper is an especially a good place to park non-emergency cash earmarked for use within five years. You can purchase an individual Treasury through TreasuryDirect.gov or through your online brokerage. Or you might invest in an ultra low-cost exchange-traded fund that invests US government bonds.
Buying a bond and holding it to maturity is a way to maximize your earnings and insure you get your full principal back. If you sell it before maturity, you may get more or less back than your principal. If you sell at a higher price, you will book a capital gain which, unlike the interest you earn, is fully taxable.
You’ll want to match the duration of the bond to when you’ll need the money. So don’t invest in a 5-year note if you’ll need the money in two years. “If there’s a mismatch in your timing, there can be problems,” said Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth.
Similarly, with an ETF, look under the hood to make sure the vast majority of holdings in the fund reflect your time horizon, said Carlton Davis, co-head of fixed income at investment management firm Chevy Chase Trust.
If you’re not sure when you’ll need the money, you might invest in rolling three-month Treasuries, Pappalardo suggested. You’ll get a little less yield – on Wednesday morning the average 3-month yield was 3.92% versus 4%-plus in longer term paper. But you won’t be locking up your money for more than three months at a time.
Certificates of deposit: Another opportunity for savers is in fixed rate certificates of deposit, where rates have also risen this year, Davis noted.
On Schwab.com Wednesday, average rates were between 4.02% and 4.65% for CDs with durations ranging from three months to five years.
Interest earned on CDs, which are FDIC insured, is subject to federal, state and local income taxes.
Check what, if any, early withdrawal penalties there are if you take your money out before the CD matures. (If you buy one through a brokerage, you can sell it, but the “penalty” would be if the price you get is less than your full principal.) Also, if you buy a “callable” CD that means the bank can recall it after a certain point before maturity and send you back your principal plus interest earned to date.
Online high-yield savings accounts: For emergency funds or any money you need quick access to in the short term, online high-yield savings accounts from FDIC-insured banks pay the best returns. As of Wednesday morning, top-paying accounts were offering rates between 3.75% and 4.15% on Bankrate.com.
While high-yield savings account rates can change at any time, some online banks have been guaranteeing rates of 4% or more for anywhere between 60 days and a year, according to DepositQuest.com.
Money market funds: For money needed in the short-to-medium term, a low-cost money market fund may offer an attractive return. As of Wednesday, the average 7-day annualized variable yield was 3.48% on the Crane 100 Money Fund Index. Money market funds are not FDIC insured but are considered safe since they invest in short-term, low risk, high-quality debt instruments.
Your debts
You can’t control when the Fed will lower rates – and even when it does it may not make as big a difference in your borrowing costs as you think. But you can limit how much interest you pay.
Your credit cards: The average credit card rate is 19.57% as of last week, according to Bankrate data. That is below the record high (20.79%) set in August 2024, but it is still prohibitively high.
Ever wonder why credit card debts are so expensive? It’s because they’re unsecured debt. “That means they aren’t backed by an underlying asset such as a home or car that a lender can seize if the borrower doesn’t pay them back,” per Bankrate.
But not paying your credit card bills will damage your credit. And paying just the bare minimum will create a mountain of new interest debt on top of your balance. So if you carry a balance but have a reasonably good credit score, see if you qualify for a balance transfer card that will let you pay off what you owe interest free for up to 21 months. Failing that, call your credit card issuer to see if they will cut a few points off your rate.
Your home: The average rate on a 30-year fixed rate mortgage was 6.58% as of July 23, according to Freddie Mac. That’s up a little from the week before but still below the 6.74% registered a year earlier.
Melissa Cohn, regional vice president at William Raveis Mortgage, doesn’t expect mortgage rates to fall while the US war with Iran persists.
In the meantime, Cohn suggests home shoppers may curb costs by considering an adjustable-rate mortgage if they don’t plan to stay in the home long term or believe rates will fall in the next few years. As of Wednesday, the average rate on a 5/1 ARM was 6.45%, according to Bankrate.
Another option is to pay points to reduce the interest rate on whatever mortgage you’re getting. One point, which is equal to 1% of the loan amount, will generally reduce your rate by a quarter point (0.25%). “This strategy is most effective with fixed-rate mortgages, particularly if you expect to hold the loan long term and not refinance,” Cohn said in an email.
If you own a home already and are considering borrowing against your home equity, you might consider a home equity loan (HEL) or line of credit (HELOC).
As of Wednesday, the average rate was 8.10% on a five-year, $30,000 fixed-rate home equity loan, per Bankrate. The average adjustable rate on a $30,000 HELOC was 7.44%. (Keep in mind, your adjustable HELOC rate could rise.)
Whenever borrowing against your home, “Crunch the numbers to make sure the fees and costs you have to pay don’t outweigh the loan’s benefits,” said Bankrate home lending expert Linda Bell in an email. “Most importantly, don’t forget that your home is on the line. If you don’t pay back the loan, you could lose your house to foreclosure.”
Your car: In June, the average loan for a new car was $44,407, an all-time high, according to data from Edmunds. It was payable over an average of 70.5 months at 7% interest, resulting in a monthly payment of $781.
For a used car purchase, the average loan was $30,649 over 70.3 months at 10.5% interest, with a monthly payment of $580.
Jessica Caldwell, head of insights at Edmunds, noted preliminary data for this month shows the average monthly payment for a new vehicle is at a record $784.
To keep your auto financing costs in check, Caldwell suggests shopping for interest rates as diligently as you comparison shop for the car. That means considering rates from credit unions and banks, not just the dealership.
“When benchmark rates stay elevated, it becomes more expensive for automakers to subsidize the low APR deals they’ve leaned on in the past. So they pull back on offering them broadly,” Caldwell said.
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