Want to Lock in a Better Savings Rate? Do This Before Tuesday

Photo by Prostock-studio / Shutterstock.com

Oh, how quickly the tide can turn on savers.

At the start of the year, interest rates on savings accounts were about as high as they’d been since before the Great Recession. The Federal Reserve had just hiked its benchmark federal funds rate for the fourth time in 2018, making it the first year since 2008 to see that many rate hikes.

But by this summer, interest rates on savings accounts had started to fall as banks anticipated the first Fed rate drop since 2008.

That drop came to pass on July 31, and now the Federal Reserve is expected to lower the federal funds rate again, as early as a meeting scheduled for Tuesday and Wednesday of next week.

Once that rate drops again, interest rates at the bank will follow. So, now is the time for savvy savers to stash savings in a certificate of deposit (CD). When savings account interest rates are sliding, a CD becomes a more attractive risk-free shot at staving off inflation.

Fighting inflation with CDs

Inflation has been running a bit below 2%, the Federal Reserve said in July, and the central bank’s long-term target for the U.S. inflation rate is 2%. That means your money is likely losing buying power if you aren’t earning at least around 2% interest on it.

For a year or two now, the most competitive banks — usually online banks — have offered interest rates as high as 2% if not higher on savings accounts and CDs. Those interest rates generally climbed higher after each Fed rate hike.

But just as the interest rates on savings vehicles tend to rise with a climbing federal funds rate, they tend to fall with a dropping federal funds rate. So, even if your savings account still pays north of 2%, your interest rate is unlikely to remain that high after any additional Fed rate drops — unless you lock it in before those occur.

Putting your cash savings in a CD allows you to do just that: Lock in a specified interest rate for a specified length of time. CD terms can be as short as three months or as long as five years — or even more.

Selecting a CD is much like shopping around for a savings account: Basically, you need to find out what interest rates multiple banks are offering on CDs right now. Or, use a free online resource like Money Talks News’ CD search tool to view multiple rates from multiple banks in one place.

Next, narrow your CD options by deciding for how long you are comfortable locking up cash savings. If you don’t want to tie up money for more than a year, for example, you need a CD term of one year or less.

CDs tend to pay higher interest rates than savings accounts, but it’s in exchange for you agreeing not to touch the money that you put in a CD for the length of the CD term. If you remove money from a CD before then, you generally will get hit with a penalty that effectively takes a chunk out of your interest earnings.

Another benefit of CDs

CDs are not the only way to earn a higher return on cash savings in the short term. But they are one of few ways you can beat inflation in the short term without risk.

Money in a CD, like money in a bank account, is insured. The Federal Deposit Insurance Corp., an independent federal agency, insures such deposits for at least $250,000.

You can verify whether a bank is FDIC-insured by using the FDIC’s free BankFind tool — and you should do that before transferring money to a CD.

What’s your take the latest news about the federal funds rate? What, if anything, are you doing to prepare for falling interest rates? Share with us by commenting below or over on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
How to Buy a Refrigerator, Step by Step
How to Buy a Refrigerator, Step by Step

Here’s how I got the perfect appliance at the perfect price.

15 of the Fastest-Growing Jobs Today
15 of the Fastest-Growing Jobs Today

Times are tough, but these career fields are thriving.

8 Products to Reduce Anxiety and Stress
8 Products to Reduce Anxiety and Stress

Current events have you feeling anxious? These Amazon products can take the edge off.

5 Reasons You Should Retire Sooner, Not Later
5 Reasons You Should Retire Sooner, Not Later

Waiting until age 70 to retire isn’t for everyone. Could you be waiting too long?

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less
5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less

In this week’s podcast: tips on retiring overseas — from someone who’s been helping American expats for decades.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

Why Half of Retirees Now Owe Taxes on Social Security
Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.