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With inflation lingering, the economy chugging along and unemployment low, the Federal Reserve isn’t in a rush to cut interest rates, at least until potentially later this year. That means savers have more time to lock in certificates of deposit (CDs) paying 5 percent or more. That doesn’t mean rates will soar much higher, but the window is still open to get a good return on your savings.
“The timetable when the Fed starts cutting interest rates keeps getting pushed back,” says Greg McBride, chief financial analyst at Bankrate. “If you have the available cash and are thinking of locking in, now is a great time to do it. Waiting offers no assurances that you’ll find higher CD yields later.”
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After more than a decade of near-zero returns, some CDs now yield as much as 5.4 percent. That’s because the Fed steadily raised its key short-term interest rate 11 times beginning in March 2022 to fight rising inflation. The Fed’s current target range for its key rate, which influences rates on everything from car loans to bank accounts, is between 5.25 percent and 5.5 percent.
Retirees and others on fixed incomes have benefited from the resulting higher savings rates. You can even get as much as 5.25 percent for bank money market accounts. (Some regular banks haven’t gotten the news and still offer as little as 0.1 percent.)
If you need a microscope to see the yield on your savings — your bank isn’t required to raise rates just because the Fed does — it may make sense to grab higher yields now. A $10,000 deposit earning 0.1 percent will give you $10 a year in interest, enough for a candy bar or two. At 5.75 percent, that’s $575, enough to buy several fancy meals. Those yields won’t be there forever now that the Fed is telegraphing that it will eventually cut interest rates, rather than increase them. “If you’ve been waiting, now is the time to lock in rates,” McBride says. If inflation does indeed fall in the next year, as some economists predict, your inflation-adjusted return will be even higher.
How to do it
Shop around for CDs. Check rates on websites such as Bankrate.com or CDValet.com to get a sense of the range of current offerings. Online banks often dangle the highest yields because their overhead is lower. Also stop by your local bank or credit union to see if its CD rates are competitive. Sometimes customers who meet a minimum deposit requirement, perhaps $5,000, can get special rate offers.
Alternatively, consider Treasury securities from the U.S. government. Like bank CDs, they pay a guaranteed fixed rate of return for a fixed period of time as long as you hold them to maturity. You can purchase Treasuries from the government at TreasuryDirect.gov, or invest in them through a brokerage account. If you’re willing to risk fluctuating yields, a bank money market account or a money market mutual fund can help you easily take advantage of the Fed’s largesse. These accounts typically track the yield on short-term Treasury bills, which currently pay between 4.81 and 5.39 percent. Today, the average money market fund yields 5.03 percent, according to Crane Data, which tracks the funds, and high-yielding bank money market accounts yield about the same.
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