Despite unprecedented public needling from President Donald Trump to lower interest rates, the Federal Reserve board stood pat on Wednesday.
But the US central bank is still widely expected to cut its key overnight lending rate at least once if not twice this year, possibly as soon as its next meeting in mid-September.
Any Fed move (or inaction) on its key rate has a direct effect on many savings and borrowing rates throughout the economy — and an indirect one in the case of mortgages, which are more closely tied to the 10-year Treasury yield.
But if this is truly the last meeting before the Fed starts cutting rates again — and if concerns that the economy and especially the job market may weaken in the coming months — it’s more important than ever to maximize the return on your cash savings and minimize your debt payments on a sustained basis.
“Consumers should continue to aggressively pay down high-cost debt and pad their emergency savings,” said Greg McBride, chief financial analyst at Bankrate. “Less debt and more savings equates to additional breathing room and financial flexibility, regardless of the path the economy takes.”
You’ll need money close at hand to pay for any upcoming big expenses like a down payment or tuition; emergencies; and, if you’re in or near retirement, living expenses for a year or more so you’re not forced to tap investments when markets are down.
For these kinds of cash savings, there are several attractive options that offer inflation-beating returns.
High-yield online savings accounts: The average FDIC-insured high-yield savings accounts at online banks will likely pay you much more than brick-and-mortar bank savings accounts.
Rates this month have been as high as 4.44%, well above the 0.56% national average, according to Bankrate.
When the Fed cuts rates, the yields on these accounts will also move down. But if the Fed cuts in total no more than half a percentage point this year, as traders expect, you’re still likely to see at least some online high-yield savings accounts offer rates around 4% for the rest of the year, said Ken Tumin, founder of DepositAccounts.com, which is now owned by Lending Tree.
Money market accounts: The same expectation applies to money market accounts, Tumin said.
Though they typically require higher minimum deposits, many FDIC-insured MMAs have been offering rates of between 3.8% and 4.3%, Bankrate found.
Money market funds: These funds are not FDIC-insured. But they nevertheless are considered a very low-risk way to get better yields because they invest primarily in shorter-term government securities.
The average 7-day yield among the top 100 money market funds was 4.12% as of July 29, according to Crane Data.
No-penalty CDs: If you want a good return on money you can easily access, consider a no-penalty certificate of deposit from an online FDIC-insured bank.
As of Tuesday afternoon, top rates on no-penalty CDs with terms of six months to a year ranged between 4.30% and 4.45%, per Bankrate.
Normally, if you take money out of a CD before its term ends you pay a financial penalty. But with a no-penalty CD, that deterrent is removed so long as you keep the money in there for at least a week, Tumin said.
Unlike with an online high yield savings account — the rate on which will fall when the Fed starts cutting rates — a no-penalty CD lets you lock in today’s yield for up to a year while still giving you flexibility to access your money when needed.
“It’s the best of both worlds,” Tumin said.
For money you’ll need within a year or two, or within three to five years, you might consider some select investments in Treasuries and municipal bonds, a bond mutual fund or a bond exchange-traded fund.
Treasuries: Backed by the full faith and credit of the United States, Treasury bills and notes are considered very low risk. And you may get a tax break for investing in them.
As of Wednesday midday, short-term Treasury bills with varying durations from three to 18 months had average yields ranging from 4% to 4.33%, according to data on Schwab.com.
Treasury notes, with durations from two to 10 years, had average yields of between 3.86% and 4.36%.
The interest you’re paid on your Treasury investment is typically exempt from state and local taxes. That’s especially beneficial if you live in a high-tax area. Assuming fairly comparable yields, that may make a Treasury more appealing than a CD, since interest on the latter is subject to federal, state and local tax, Tumin noted.
But if you live in a state with no income tax and you’re in a relatively low federal income tax bracket, a CD might be a better bet if it offers a more attractive yield.
AAA-rated municipal bonds: Another tax-advantaged fixed-income offering is a top-quality muni bond. The interest you’re paid is exempt from federal income tax — and in some cases, state and local taxes too, if the muni is issued by your home state or city.
Based on a $25,000 investment, AAA-rated munis with durations of between three months and three years on Wednesday had average rates of between 2.31% and 3.39% on Schwab.com.
Intermediate-term bonds: Generally speaking, it’s a good time to invest in investment-grade, intermediate-term bonds for money you might not need for two or more years, said Craig Pernick, head of fixed income at Chevy Chase Trust, a wealth management firm.
Their valuations are at some of the best levels in 20 years, especially relative to equities, he said.
If you’re not working with an investment adviser who can create and monitor a diversified bond portfolio for you, you might invest in a low-cost intermediate-term bond fund or ETF.
“ETFs are a good way to get a piece of that strategy with the least amount of effort,” said Rhode Island-based certified financial planner Sue Gardiner.
Treasury inflation protected securities (TIPS): If you want to protect your purchasing power in the future, you might consider putting some money in TIPS, which are issued for terms of five, 10 and 30 years.
The value of the principal on a TIPS is tied to the Consumer Price Index. So if it rises during the time you hold the security, you will get back more than you paid when the bond matures. If it falls, you still will get back your original amount, according to TreasuryDirect.gov.
TIPS also pay a fixed rate of interest every six months that is based on the current principal value.
“For time frames of five-plus years, a TIPS can be a good alternative to a CD,” Tumin said. “They will likely do better than CDs if high inflation becomes a problem.”
Gardiner said a TIPS fund might be good for a portion of money you might not need for 10 or more years — whether for your heirs or yourself. “The clients I have in TIPS are more conservative investors who want inflation protection on conservative investments.”
High interest rates prevail on various types of consumer loans. And even if the Fed cuts rates several times from September through the end of next year, that still might not do much to make your debts manageable. So take steps to reduce your own burden.
“Those with debt should look at ways to knock down interest rates themselves,” said Matt Schulz, LendingTree’s chief consumer finance analyst.
Credit cards: The average card rate is still north of 20%, according to Bankrate. That may come down when the Fed cuts rates, but not nearly enough to make carrying a balance from month to month a good idea.
You’ll save a lot of money if you get a zero-rate balance transfer card, which will let you pay off your principal interest free for up to 21 months.
“A 0% balance transfer credit card is hard to beat, if you qualify,” Schulz said.
If you have cash on hand — say from a home sale or family gift — you might take advantage of current savings yields to earn passive income that will help you pay down your principal during the zero-rate period, Gardiner suggested. For instance, she said, you might put a third of your cash in a high-yield savings account, another third in a six-month CD or Treasury and the last third in a one-year CD or Treasury.
If you can’t get a zero-rate card, Schulz said, you might try to secure a lower interest rate on a personal loan, the average rate on which is now 12.64%, according to Bankrate.
Another option: “Consider asking your lender for a lower rate, either by yourself or with the help of an accredited nonprofit credit counselor,” he suggested. “That works far more often than you’d imagine and the rate reductions can be far larger than any you’re likely to see from the Fed.”
Home loans: For the week ending July 24, the average rate on a 30-year fixed rate mortgage was 6.74%, according to Freddie Mac. That is about the same as it was a week earlier and just a little above its 52-week average of 6.68%.
Where mortgage rates go next will be driven by the yield on the 10-year Treasury, which moves on economic factors such as inflation and growth and expectations of what the Fed will do next. However, even if the Fed lowers rates in the coming months, some analysts note that some Treasury yields could go higher if investors demand more of a premium to buy all the additional debt the United States now has to issue to pay for the $3.4 trillion cost of the mega tax-and-spending-cuts package signed into law on July 4.
Meanwhile rates on home equity loans and home equity revolving lines of credit, which are more directly tied to the Fed’s moves, are still high, although not as high as they were. As of July 23, the average was 8.25% for HELs and 8.26% for HELOCs, according to Bankrate.
Whatever type of home loan you’re seeking, you can improve your chances of getting the lowest rate possible by making sure your credit score is the best it can be, according to Bankrate. And it always helps to shop around for the best loan terms available.
Car loans: When it comes to buying new vehicles, the average amount financed in June was $42,861 over 70 months, about $2,000 more than a year earlier, according to data from Edmunds.com. The average APR was 7.3%, the same as it was in June 2024.
For used cars, the average financed was $29,315 over 69.8 months — or roughly $1,200 more than a year earlier. The average APR was 10.9%, below the 11.5% registered in June 2024.
That’s why the best bet for reducing your loan burden is to borrow the least amount possible, said Joseph Yoon, Edmunds’ consumer insights analyst.
While you may be eligible for a new auto loan interest deduction for vehicles purchased in 2025, 2026, 2027 and 2028, don’t let that push you into signing up for a loan that will strain your budget.
“Tariffs have yet to significantly shift vehicle pricing, and consumers are already testing their budgeting limits, as evidenced by trends like longer loans and record-setting monthly payments,” Yoon said.
Regardless of what the Fed does in the coming few months, “the affordability challenges plaguing the car market will remain unchanged,” he added. “For most car shoppers, any potential tax deduction is likely to be negligible, especially given how interest costs aren’t top of mind when a buyer is signing on the dotted line.”
