After four years of steady interest rate hikes, the Federal Reserve finally reversed course on September 18, announcing its first rate cut since the COVID-19 pandemic began wreaking havoc on the economy in 2020. The Fed reduced the federal funds rate by half a percentage point, bringing it down to a target range of 4.75 to 5 percent. For over a year, the rate had remained in the 5.25 to 5.5 percent range, but this cut signals a shift in monetary policy.
This move will undoubtedly have widespread implications for the U.S. economy. On one hand, it will lower borrowing costs for consumers and businesses, making loans and credit more accessible. However, it will also reduce the interest earned on savings, which could impact retirees and others who rely on interest income to supplement their finances. Savers will need to carefully evaluate their options to ensure they can still earn the best returns while keeping their money in a safe place.
While interest rates on savings accounts, money market accounts, and certificates of deposit (CDs) will likely decrease, there are still opportunities to earn solid returns, according to financial experts. Greg McBride, chief financial analyst at Bankrate, noted that top-yielding accounts will continue to offer rates higher than inflation, which currently stands at 2.5 percent. This presents a rare opportunity for savers to earn interest that outpaces inflation, even as rates decline.
For those looking to park their cash safely and still earn decent returns, there are a few options to consider. Money market accounts, both from banks and investment companies like Fidelity, Schwab, and Vanguard, offer flexibility with check-writing capabilities and competitive interest rates. While some accounts have been offering around 5 percent interest recently, the added security of federal insurance from the FDIC or NCUA makes them attractive to conservative savers.
High-yield savings accounts are another option that has gained popularity over the past four years. Although rates on these accounts will likely dip along with the Fed’s rate cut, they remain a secure place to store savings. Unlike money market accounts, these don’t typically offer check-writing privileges, but they compensate by paying slightly higher interest. Currently, some of the best high-yield savings accounts are offering over 5 percent, which can still provide a respectable return on your money.
Certificates of deposit (CDs) are another tool in the conservative saver’s arsenal. While rates on new CDs are expected to decrease, people who locked in CDs with higher yields in recent years will continue to benefit. CDs offer fixed interest rates for a set term, but the downside is the lack of flexibility—withdrawals before the term ends typically come with penalties. Still, CDs can provide a stable income source for those willing to commit to leaving their funds untouched for a while.
