Federal Reserve maintains current interest rate; potential advantages outlined.
In these tumultuous economic times, it's crucial to take control of your financial future. That starts with ensuring your savings are earning the best returns possible, especially considering Trump's tariffs are sending inflation soaring.
Right now, the Federal Reserve isn't lowering their key overnight lending rate, so your cash can still generate a healthy yield. Inflation, standing at 2.3% in March, is expected to surge this year due to the tariffs. Economists like Joe Brusuelas predict both headline and core inflation could top 4% later in 2023. To match or beat this expectation, here's what you should do with your savings.
Easy-to-Access Savings
For quick, emergency cash or near-term funds, consider using FDIC-insured online high-yield savings accounts. They pay much more compared to big brick-and-mortar banks. Although bank savings rates are variable, many of the highest-yielding online savings accounts are currently paying between 4% and 5%, according to Bankrate.com, versus roughly 0.1% at the biggest banks.
Long-Term Savings
If you're saving for down-the-line expenses like a down payment or living expenses for retirement, you can lock in advantageous rates now through Treasuries, Treasury bills, Treasury notes, tax-advantaged municipal bonds, or CDs from FDIC-insured banks.
Treasury bills come in six maturities, ranging from four to 52 weeks. Treasury notes mature in two, three, five, seven, and 10 years. If you buy a Treasury and hold it to maturity, you'll lock in a rate of return that's higher than inflation while also preserving your principal. As of late May, Treasury bills were offering average yields ranging from 3.88% to 4.33%, while Treasury note yields ranged from 3.78% to 4.28%.
Municipal bonds are a key way that state and local governments fund their public works, such as building or improving roads, bridges, and water systems. High-quality AAA-rated municipal bonds yield particularly favorable tax advantages for those in high-tax states, especially people in the top income tax brackets. The interest you earn is exempt from federal income tax, and it may also be exempt from state and local taxes if you buy one issued by your home state.
Certificates of deposit (CDs) from FDIC-insured banks are a reliable place to park money you can afford to lock up for a fixed period. For example, CDs with maturation periods ranging from 3 months to five years are currently offering average yields above 4%.
Money market mutual funds are a low-risk, one-stop shop for parking money that will always get the best cash yields. Unlike money market accounts, money market mutual funds are not federally insured, but they usually maintain a price of $1 a share. If the fund invests in top-rated municipal securities issued by your home state, your returns may be tax-free.
Debt Rates
Regrettably, interest rates on debt aren't budging much. While the Fed hasn't chosen to raise rates, which would make finding an affordable loan worse, how you manage your debt is more important than any move the Fed makes. Credit card rates are still sky-high, making it crucial to seek 0% balance transfer cards if you carry high-rate debt. Mortgage and car loan rates have also increased, so be sure to shop around for the best deals and carefully compare loan offers to help navigate the complicated shopping path.
- Economist Joe Brusuelas predicts both headline and core inflation could top 4% later in 2023, making it crucial for personal-finance management to ensure savings are earning the best returns possible.
- For quick, emergency cash or near-term funds, consider using FDIC-insured online high-yield savings accounts, as many of the highest-yielding ones are currently paying between 4% and 5%, according to Bankrate.com.
- Long-term savings for expenses like a down payment or living expenses for retirement can lock in advantageous rates now through Treasuries, Treasury bills, Treasury notes, or CDs from FDIC-insured banks.
- In contrast, regrettably, interest rates on debt aren't budging much, and managing debt effectively, such as seeking 0% balance transfer cards, is more important than any move the Federal Reserve makes.
