By Jeanne Sahadi, CNN
(CNN) — After weighing a slightly lower unemployment rate and a hiring slowdown with small increases in inflation in December, the Federal Reserve on Wednesday decided to leave its key overnight lending rate untouched. That decision follows the three cuts the Fed made last year, for a total of six cuts since September 2024.
The Fed rate, of course, influences – directly or indirectly – the rates on consumer savings and loan products throughout the US economy. And therefore it affects what you’ll make on your money and pay on your debts.
What you should do in the wake of any Fed rate decision depends on whether your savings are well positioned to get the highest yield available and whether the interest rates you pay are as low as they can be, given your credit score and personal situation.
Here is where things stand as of this week to give you a point of reference:
Your savings
For money you don’t want to risk but which you want to grow faster than inflation, you have several options. With each, consider their tax bite and the ease of access to your funds when you need them.
Online high-yield savings accounts: Some of the best yields you’ll get on savings that you’ll need quick access to (e.g., for emergencies, an upcoming trip or a down payment) can be had in FDIC-insured online high-yield savings accounts.
As of Wednesday, some of the best variable rates on offer for such accounts were 4% or more, while others ranged between 3.65% and 3.99%, per Bankrate.
The top five highest rates available for online high-yield savings accounts were between 4.25% to 4.60% so far this week, according to Ken Tumin, co-founder of DepositQuest.com. Tumin also found that the average rate on the five biggest online high-yield savings account providers (e.g., from Ally, Marcus and Capital One) has fallen from 4.31% to 3.44% since the Fed started cutting rates in September 2024.
Interest you earn from high-yield accounts will be subject to federal, state and local income.
Certificates of deposit: For a stable place to park cash you won’t need right away, you might get a brokered certificate of deposit (meaning you can buy it through your brokerage). Or you may buy one directly from your bank.
On Wednesday, for instance, some of the best-paying CDs with durations from three months to five years offered rates between 3.75% and 4.05% on Schwab.com.
Among 12-month CDs directly available from banks, meanwhile, you might get a slightly higher rate (4.00% to 4.20% APY), Tumin said.
If you take money out of traditional CDs before they mature, you may forfeit some interest as a penalty. But there are still a few “no-penalty” CDs with attractive rates that don’t penalize you for early withdrawals and offer a competitive alternative to online high-yield savings accounts, he said. Among them, a 3.95% 13-month CD from Marcus and a 3.9% 11-month CD from USALLIANCE Financial Credit Union.
The interest you earn on CDs will be subject to federal, state and local income.
Money market funds and deposit accounts: A money market mutual fund invests in highly liquid, low-risk, short-term debt instruments. It is not FDIC-insured but may be insured through the Securities Investor Protection Corporation if you buy one through your brokerage.
The average 7-day yield on money market funds was 3.50% on Wednesday, according to Crane Data.
By contrast, your bank may offer a money market deposit account, which is FDIC in