The Federal Reserve has raised its benchmark interest rate by 0.25%.
While we don't know for sure what moves the Fed will make with interest rates this year, the consensus is the pace of rate increases is expected to slow. Barring something unexpected, the most severe rate hikes are likely in the rearview mirror and the Fed may even begin dropping rates in 2024. This makes now a good time to lock in a fixed rate certificate of deposit (CD) while interest rates are (possibly) peaking.
Below, CNBC Select goes into more detail about why you should look into that CD, as well as other short-term moves you might want to make in the wake of today's rate hike.
3 steps to take now that the Fed has raised rates again
Today's interest rates present opportunities and challenges. On the one hand, the cost of borrowing money is increasing. This makes mortgage and auto loans more expensive to take out and increases the cost of variable-rate debt, such as credit cards. The other side is that the annual percentage yield (APY) on savings accounts, CDs and money market accounts is much more generous to savers.
Here's what you can do right now to help limit the damage of higher rates or boost your returns.
Lock in a high rate with a CD
Your savings account's interest rate can change at any time as the prevailing rates shift up or down. That means your stellar 5% savings rate may not last, so if you'd prefer to lock in today's rate for months (or years), you may want to open a CD.
CDs offer a fixed interest rate for a set period, typically anywhere from three months to five years. CDs offer rates as good or better than what you find with savings accounts, but they aren't as flexible. If you withdraw the money early, you'll be hit with penalties. That makes CDs better for money you've earmarked for a medium or long-term goal, rather than cash you'd need to quickly access in an emergency.
Some of the best CD rates are offered by Quontic Bank and Bread Savings™ (formerly Comenity Direct). Bread Savings offers up to 5.35% with no monthly maintenance fees, but there is a $1,500 minimum deposit. Quontic Bank has a smaller $500 minimum deposit with an interest rate of up to 5.30%.
Bread Savings™ (formerly Comenity Direct) CDs
Bread Savings™ (formerly Comenity Direct) is a product of Comenity Capital Bank, a Member FDIC.
Annual Percentage Yield (APY)
From 4.15% to 5.35% APY
Terms
From 1 year to 5 years
Minimum balance
$1,500 minimum deposit
Monthly fee
None
Early withdrawal penalty fee
Early withdrawal penalty applies. For terms shorter than 1 year, the penalty is 90 days simple interest. For terms 12 months to 3 years, the penalty is 180 days simple interest. For terms 4 years and up, the penalty is 365 days simple interest.
Terms apply.
Quontic Bank CDs
Quontic Bank is a Member FDIC.
Annual Percentage Yield (APY)
From 4.30% to 5.30% APY
Terms
From 6 months to 5 years
Minimum balance
$500 minimum deposit
Monthly fee
None
Early withdrawal penalty fee
Withdrawals before the maturity date are subject to penalties. For time deposits up to 12 months, the penalty will be equal to the interest for the full length of the stated term. For time deposits 12 months to under 24 months, the penalty equals one year interest. For time deposits 24 months and over, the penalty equals two years interest. If the accrued interest exceeds the penalty amount, the excess accrued interest over the penalty amount will be paid to you. If the accrued interest is less than the penalty amount, a reduction of the principal balance may result.
Terms apply.
Maximize your savings account's interest rate
Right now, the best high-yield savings accounts have interest rates of around 5%. This means if your savings account earns anywhere near the national average (under 0.50%), you can give your savings a massive boost by opening an account with a higher rate of return.
Currently, the Western Alliance Bank High-Yield Savings Account has an APY of 5.24% with no monthly fee and no overdraft fee. This account has a $1 minimum deposit, and the rate isn't capped, so you'll earn this APY on any deposit amount.
Western Alliance Bank High-Yield Savings Account
Western Alliance Bank is a Member FDIC.
Annual Percentage Yield (APY)
5.24% APY
Minimum balance
$1 minimum deposit
Monthly fee
None
Maximum transactions
Up to 6 transactions each month
Excessive transactions fee
The bank may charge fees for non-sufficient funds
Overdraft fee
No overdraft fee
Offer checking account?
No
Offer ATM card?
No
Terms apply.
The Bask Bank Interest Savings Account offers a hefty 5.10% APY with no minimum deposit, no monthly fee, no excessive transaction fees and no overdraft fee. If you care about airline miles, the Bask Bank Mileage Savings Account might appeal to you. It offers 2.5 American Airlines miles per $1 saved annually, instead of offering a cash return on your savings.
Bask Interest Savings Account
Bask Bank is a division of Texas Capital Bank, Member FDIC.
Annual Percentage Yield (APY)
5.10% APY1
Minimum balance
None
Monthly fee
None
Maximum transactions
Up to 6 withdrawals or transfers per statement cycle
Excessive transactions fee
None
Overdraft fee
None
Offer checking account?
No
Offer ATM card?
No
Terms apply.
1Annual Percentage Yields (APY) and Interest Rates shown are offered on accounts accepted by Bask Bank and effective per the dates shown above, unless otherwise noted. Annual Percentage Yield is variable and subject to change at any time. No minimum balance requirement and no monthly service charge. Must fund within 15 business days of account opening.
Pay down variable-rate debt
If you plan on taking on debt to pay for school, a home or anything else, rising rates can quickly eat away at your buying power. And any debt with a variable interest rate will also become more expensive to service.
Prioritizing high-interest debt makes sense in today's high-rate environment. With the average credit card interest rates currently above 20%, paying off your card balance could save you much more than what you would earn by setting aside an equal amount of money in a high-interest account.
Depending on your situation, it may even make sense to take advantage of a 0% APR credit card. These cards offer no interest for a set timeframe, usually anywhere from six to 21 months. Just pay attention to which purchases qualify for the introductory APR and any balance transfer fees.
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Bottom line
The Federal Reserve has increased the Federal Funds rate once again.This move is likely to continue pushing interest rates higher for mortgages, personal loans, credit cards, and savings accounts.
Higher interest rates make high-yield savings accounts and CDs more appealing. At the same time, it increases the value of paying off debt, especially debt with a variable interest rate.
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Read more
These top high-yield savings accounts could earn you over 12X more money than the national average
The best CD rates of August 2023
How to get the best mortgage interest rate as they continue to increase
4 ways to get the best deal on your mortgage
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
