As the Federal Reserve gears up for another potential interest rate cut this week, experts suggest it’s an opportune moment to secure attractive returns on your cash.
“The top savings accounts, money markets, and CDs [certificates of deposit] are still offering rates that outpace inflation, and this trend could continue well into 2025,” notes Greg McBride, chief financial analyst at Bankrate.
Forecasts indicate that the Fed might lower interest rates by a quarter of a percentage point on December 18, concluding its two-day policy meeting. If this happens, it will be the third rate decrease since September, culminating in a total reduction of one percentage point.
“There’s no time to waste,” McBride advises. “Hoping for better yields by waiting might not be the best strategy.”
Looking to the future, yields might dip come January. This means that consumers delaying their financial decisions could miss the chance to lock in superior returns on their investments.
“If you have funds ready to deploy, there’s a strong possibility today’s yields will be better than those you’ll find next month,” McBride explains.
By acting now, you can secure yields that stand up well against inflation. For instance, Treasury bonds and many CDs currently boast yields above 4%, with the option to lock in those rates for several years.
This presents a solid opportunity for savers who aren’t in immediate need of their funds or those aiming to earn interest income while diversifying their portfolios.
Continuing on the topic of investment options, Series I bonds provide a method to prevail over inflation. Presently, they offer a fixed rate of 1.2% in addition to the inflation rate, according to McBride.
However, I bonds come with certain restrictions, such as a limit on yearly purchases. Additionally, you cannot cash them in the first year, and if you do so before five years, you’d lose three months’ interest.
“You need to be confident in managing without the cash to maximize your returns,” McBride advises.
Alternatively, Treasury Inflation-Protected Securities (TIPS) are another government-backed investment with inflation protection. TIPS allow greater annual investment and more liquidity since they can be traded on the secondary market. As of December 16, a five-year TIP offers a yield of 1.88% above inflation.
Deciding when to focus on cash liquidity is a personal decision and should align with your financial outlook for 2025.
Ken Tumin, founder of DepositAccounts.com, observes that if 2025 doesn’t see further interest rate cuts, there might be less incentive to lock in cash returns now.
In addition, high-yield online savings accounts are currently offering better rates than many CDs. Some online banks provide over 5% annual percentage yields, even on small balances, unlike the best one-year CD, which gives 4.65% on a $50,000 deposit.
Tumin suggests a strategy of keeping liquidity in top online savings accounts without locking in. Alternatively, savers might hedge by putting half their cash deposits in a high-yield savings account and the other half in longer-term CDs.
