Interest rates are paused – make these 3 financial moves now

The Federal Reserve has raised interest rates 11 times in the past 18 months. However, that trend seems to be changing, at least for the time being. The Fed left rates unchanged for the second consecutive meeting on Wednesday maintaining its target rate between 5.25% and 5.50%.

The Fed’s decisions have a direct impact on your money, but the moves you should make following their decisions are often unclear. After all, the relationship between the Fed and your money is a complex one. 

So, what can you do to take advantage of the recent news? There are actually multiple moves you can make today.  

Start by opening a high-yield savings account to earn higher rates on your money.

Make these 3 financial moves to take advantage of paused interest rates

The Fed’s decision to leave interest rates paused opens the door to uncertainty. Nobody knows definitively what direction inflation is headed next although two pauses in a row indicate a slowdown in rate hikes. The most likely situation is that inflation remains above the Fed’s 2% target and another rate hike is announced, possibly in December. However, there is the chance that inflation could slow as a side effect of today’s high interest rates, leading to a longer pause and potential rate reduction in the future. 

So, what does that mean for your wallet?

For the most part, it means that it’s probably a good idea to take advantage of interest rates as they stand. Here are three ways you can do that:

Lock in your mortgage rate

If you’re in the market for a new home, it may be a wise idea to lock in your mortgage rate now, rather than waiting it out. That’s because there’s a strong argument that rates could go up ahead. 

The general concept is that the Federal Reserve increases the target federal funds rate in an attempt to slow inflation. So, higher inflation equates to high chances of a rate increase. Although rates are paused at the moment, we’re also headed into the holiday season. 

Why is that important?

Inflation is a matter of supply and demand. When supplies are low and demand is high, prices must rise. Demand for everything from food to toys, tools, fuel and jewelry usually grows around the holiday season. As such, holiday demand could spur an increase in inflation, which could cause the Fed to react with yet another rate hike. Beyond that, the current inflation rate is still  above the Fed’s 2% target, suggesting there could be more rate hikes on the horizon.

So, if you need to purchase a home any time in the near future, it may be wise to lock in today’s mortgage rates rather than taking the chance of having to buy at higher rates later. 

Lock in your mortgage rate today.

Open a CD

Today’s certificate of deposit (CD) yields are through the roof, but interest rates won’t stay high forever. Instead, rates tend to move in upward and downward cycles. To get the most out of your money, it’s a good idea to lock in rates while they’re high and take advantage of outsized returns when they’re low. 

CDs give you a way to do just that. 

When you open a CD, you decide upon a term that’s usually anywhere from a few months to 10 years. You agree to keep your money in the CD until it matures and in exchange, the bank offers you “fixed interest rates and a predictable return on investment,” says Cameron Burskey, senior partner at Cornerstone Financial Services in Southfield, Michigan. 

That means if you buy a CD now, you can lock in today’s high interest rates for years. Moreover, these accounts are FDIC-insured, offering “guaranteed principal protection,” says Burskey. So, you can rest assured that your account is safe. 

Lock in today’s high interest rates with a CD now. 

Open a high-yield savings account

“High-yield savings accounts typically offer higher interest rates than a traditional savings account,” says Steve Azoury, ChFC and owner of Azoury Financial in Troy, Michigan. “This means these accounts may allow your money to grow at a higher rate of return.”

With a high-yield “savings account, your money isn’t tied down,” Azoury says, making these accounts “perfect locations for short term savings.” 

Although high-yield savings accounts have variable rates, it’s not wise to lock your emergency savings in an illiquid savings vehicle. So, these accounts give you the ability to take advantage of the impressive savings rates of today while maintaining access to your money when you need it. 

Take advantage of today’s impressive high-yield savings rates now. 

The bottom line

One thing that’s clear is that the Federal Reserve’s interest rate pause isn’t going to last forever. There’s no telling for sure whether the next move will be a rate increase or decrease. With uncertainty in the air, now may be the perfect time to act. Consider locking in mortgage and CD rates while taking advantage of the impressive returns offered by high-yield savings accounts.