The Federal Reserve has temporarily halted its interest rate reductions. Discover the most effective strategy to benefit your finances during this period.

Reviewing Your Finances After the Fed Holds Rates Steady

When the Federal Reserve chooses not to adjust interest rates, it's a good opportunity to evaluate both the returns on your savings and the interest you're paying on any debts. This ensures you're making the most of current rates available in the market. Image credit: Natee Meepian/iStockphoto/Getty Images

Recent Fed Decision and Its Impact

Following a period of slightly lower unemployment and modest increases in inflation in December, the Federal Reserve opted on Wednesday to keep its benchmark overnight lending rate unchanged. This move comes after three rate reductions last year, totaling six since September 2024.

The Fed’s rate decisions have a ripple effect across the economy, influencing the interest rates on savings accounts, loans, and other financial products. As a result, these changes can affect both the earnings on your savings and the costs of your debts.

How you respond to the Fed’s actions should depend on whether your savings are positioned to earn the best possible returns and whether you’re paying the lowest rates available, considering your credit standing and financial situation.

Here’s an overview of the current landscape to help guide your decisions:

Your Savings Options

If you want to grow your money without taking on significant risk, several choices are available. For each, consider factors like tax implications and how easily you can access your funds.

• Online High-Yield Savings Accounts: These accounts, often insured by the FDIC, offer some of the most competitive rates for funds you may need quickly, such as for emergencies or upcoming expenses. As of Wednesday, top variable rates exceeded 4%, with many accounts offering between 3.65% and 3.99% (source: Bankrate). The five highest rates this week ranged from 4.25% to 4.60%, according to Ken Tumin of DepositQuest.com. However, the average rate among major providers has dropped from 4.31% to 3.44% since the Fed began lowering rates in September 2024. Interest from these accounts is subject to federal, state, and local taxes.
• Certificates of Deposit (CDs): For funds you can set aside for a fixed period, CDs are a stable option. You can purchase brokered CDs through your brokerage or directly from your bank. On Wednesday, top CDs with terms from three months to five years offered rates between 3.75% and 4.05% (Schwab.com). Some 12-month CDs from banks offered slightly higher yields, between 4.00% and 4.20% APY. Early withdrawals from traditional CDs may incur penalties, but some “no-penalty” CDs are available, such as a 3.95% 13-month CD from Marcus and a 3.9% 11-month CD from USALLIANCE Financial Credit Union. CD interest is taxable at all levels.
• Money Market Funds and Deposit Accounts: Money market mutual funds invest in short-term, low-risk debt and are not FDIC-insured, though some brokerage accounts may offer SIPC protection. The average 7-day yield was 3.50% as of Wednesday (Crane Data). Money market deposit accounts from banks are FDIC-insured but may require higher minimum balances. Top online rates ranged from 3.25% to 4.10%. Earnings from these accounts are subject to federal, state, and local taxes.
• US Treasuries: Backed by the US government, Treasuries are among the safest and most liquid investments. On Wednesday, Treasuries with terms from three months to five years offered rates between 3.57% and 3.86% (Schwab.com). Interest from Treasuries is exempt from state and local taxes, but any capital gains are fully taxable. Treasury money market funds may also offer state and local tax advantages, especially for those in high-tax areas.
• Municipal Bonds: High-quality municipal bonds can be a good choice for funds you won’t need for a few years, offering tax-advantaged income. Interest from these bonds is generally exempt from federal taxes and may also be free from state and local taxes if issued by your state or city. AAA-rated munis with terms from three months to five years were yielding between 2.12% and 2.79% as of Wednesday (Schwab.com).

Your Debts

While the Fed’s rate cuts over the past 16 months have provided some relief to borrowers, that trend has paused for now.

“Borrowing costs, although lower than the peaks of 2023-2024, are expected to remain steady for the foreseeable future,” said Charlie Wise, senior vice president of research at TransUnion.

If you’re still paying above-average interest rates, consider these strategies to reduce your financial burden:

• Credit Cards: Despite a 1.75 percentage point drop in the Fed’s key rate since September 2024, average credit card rates have only decreased by half a point, standing at 19.61% as of Wednesday (Bankrate). New card APRs are even higher, averaging 23.79% (Lending Tree), down from 24.92% in September 2024. Carrying a $7,000 balance and paying $250 monthly could cost you over $3,000 in interest over more than 40 months. Consider transferring your balance to a zero-interest card, which may offer up to 21 months interest-free, or contact your issuer to negotiate a lower rate.
• Mortgages: As of January 22, the average 30-year fixed mortgage rate was 6.09%, slightly up from the previous week but well below the 6.96% seen a year earlier (Freddie Mac). “With rates nearly a full percentage point lower than last year, more buyers are entering the market,” said Sam Khater, Freddie Mac’s chief economist. Shopping around for the best rate can save thousands over the life of your loan. However, further declines in mortgage rates are unlikely unless long-term Treasury yields decrease, according to Stephen Kates, a financial analyst at Bankrate.
• Home Equity Loans and Lines of Credit: Borrowing against your home’s equity has become less expensive, but rates remain high enough to warrant caution. The average variable rate on a $30,000 home equity line of credit was 7.44% as of January 21, the lowest in three years (Bankrate), down from 9.26% in September 2024. Fixed-rate home equity loans averaged 7.92% for five-year terms and 8.10% for ten-year terms—still nearly double the historic lows of around 4% in 2022.
• Auto Loans: Car financing remains costly. In December, the average price for a new car was $49,466, and $26,025 for a used car (Edmunds.com). Dealer-arranged financing for new cars averaged $44,361, with an average APR of 6.5%. Used car loans averaged $29,943, with a 10.5% rate. Monthly payments reached record highs: $781 for new cars and $568 for used. Nearly a third of trade-ins had negative equity, according to Ivan Drury of Edmunds. When shopping for a car, focus on the vehicle that best fits your needs rather than the model year, as average APRs are similar across 2025 and 2026 models.