As someone looking to open a new savings account or certificate of deposit (CD), you may be wondering how the decisions made by the Federal Reserve (the Fed) can impact your interest earnings. Understanding this relationship is crucial in making informed decisions about where to invest your money.
The Federal Open Market Committee (FOMC) recently held a meeting on June 11 and 12. During this time, committee members discussed whether to raise, maintain, or lower the federal funds rate. Ultimately, they decided to keep their target rate unchanged. The next meeting is scheduled for July 30 and 31, 2024, where they will once again review the federal funds rate.
These rate decisions are not only indicators of the overall health of the economy but also impact deposit accounts. Here’s a closer look at how you can make the most of today’s CD and savings rates in light of the Fed’s policy decisions.
Understanding the Federal Funds Rate
The federal funds rate is the target interest rate set by the Federal Reserve, determining the rate at which banks lend money to each other overnight to meet reserve requirements. Currently, the range is set at 5.25–5.50%, with banks negotiating a specific rate within that range.
The Fed uses the funds rate as a tool to control inflation. When inflation is high, the Fed raises its target rate to make borrowing money more expensive, which in turn encourages consumers to spend less. Conversely, when the economy needs a boost, rate cuts are implemented to stimulate spending and borrowing.
Impact on Deposit Accounts
While the Fed’s rate decision doesn’t directly influence the interest rates set by individual banks for consumer accounts, they are closely related. When the Fed raises its rate, interest rates on deposit products such as high-yield savings accounts and CDs tend to increase. Conversely, when the Fed lowers its rate, deposit interest rates usually fall.
Should You Open a New Account Before the Next Fed Meeting?
With the upcoming Fed meeting in July, many are speculating about potential rate adjustments. While it’s uncertain how the Fed will act, evaluating your current accounts or considering opening a new one can be beneficial.
Currently, some of the top high-yield savings accounts offer around 4% to 5% APY. If the Fed decides to keep rates unchanged, now is a great time to take advantage of these competitive rates. However, if rates are lowered, it might be your last chance to secure today’s rates with a CD.
Regardless of the Fed’s decision, it’s important to review your current accounts regularly to ensure you’re earning the best rate possible. By making informed decisions and staying up-to-date on the latest economic developments, you can maximize your savings and investment potential.
At Extreme Investor Network, we aim to provide valuable insights and expert advice on finance and investment topics. Stay tuned for more updates and tips on navigating the ever-changing financial landscape.