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Borrowers hoping for some rate relief when the Federal Reserve meets this week will have to wait a bit longer. With the likelihood of a rate cut at the conclusion of the central bank’s April meeting near zero, according to the CME Group’s FedWatch tool, elevated interest rates are unlikely to go anywhere anytime soon.
At the same time, this lack of movement could be a boost for savers, especially those who have yet to take advantage of the elevated interest rate environment of recent years. And with a certificate of deposit (CD) account, specifically, they can do so safely and effectively with an account that will protect their principal and boost their interest with a high, fixed interest rate.
Heading into this week’s meeting, many savers find themselves contemplating the benefit of a CD interest rate lock. Specifically, is it worth securing after the meeting has concluded, or are savers better off shopping around and waiting for even higher rates? That’s what we’ll examine below.
See how much interest you could be earning with a CD account here.
Does a CD account interest rate lock make sense after this week’s Fed meeting?
Locking in one of today’s competitive CD interest rates following the conclusion of this week’s Fed meeting could make sense. Here’s why:
A pause could lead to higher rates
Interest rate hikes often lead to higher rates on select savings vehicles. But a pause can too, especially if it’s interpreted by banks as representing heightened uncertainty. Waiting for comments by Fed officials to be made after the meeting, then, will give these institutions an opportunity to adjust their offers to both borrowers and savers.
That could mean an increase in mortgage interest rates, for example, but it also may mean slightly higher rates on CDs. And that could justify a CD rate lock from savers before the market readjusts again.
Learn more about your current CD account options now.
There won’t be another Fed meeting for months
June 16 and June 17. That’s when the next Federal Reserve meeting will be held after this week, presumably with a new chairman, too. In other words, without another Fed meeting set for May that can impact rates, savers can comfortably take the time to shop around to find a CD rate that’s actually worth locking.
At the same time, waiting too long should be avoided, as any number of factors besides the Fed can impact savings rates, especially with CDs. Shop diligently online for those accounts with the best rates and terms, but act promptly to lock one in when ultimately found.
Interest rates on traditional savings accounts are declining
While there are still multiple CD account options available at over 4% now, rates on other account types are actually declining. Case in point: Interest rates on traditional savings accounts, already minimal at just 0.39% on average, declined again last week to just 0.38%.
That makes a CD account exponentially more profitable and a clear, improved home for those currently keeping their money in a traditional savings account. Locking one of today’s CD rates then will not only guarantee a return that’s much more profitable, but it will also protect savers from some of the market dynamics that are causing rates on traditional accounts to decline further.
The bottom line
A CD account interest rate lock this week, after the Federal Reserve’s latest meeting has concluded, could be the smart move to make for savers. A rate pause, as expected, could cause CD rates to rise slightly, allowing savers to lock in a bigger return than if they had acted prior to the meeting. At the same time, there won’t be another Fed meeting until June, so savers will have more time than usual to shop around for high-rate accounts, and with interest rates on traditional savings accounts continuing to decline, locking in a much higher CD account rate could be a viable alternative. Just be sure to only deposit an amount you can comfortably part with for the duration of the CD term to avoid paying an early withdrawal penalty.
