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Experts Predict the Next Fed Rate Hike Will Come Wednesday. Will It Help or Hurt Your Savings?

Rates won’t go down overnight, so there’s still time to earn a return on your investment.

merteren / Getty Images

We’re days away from the Federal Reserve’s next federal funds rate decision. And experts are split on what will happen next. With inflation now at 3% and showing signs of cooling, the Fed may decide to hold interest rates where they are. Doing so could make room for disinflation, or inflation coming down over a longer period of time. But the Fed has also left the door open to hike rates once again, further tightening its monetary policy in an effort to bring down inflation to the central bank’s long-term target of 2%. 

“The recent dip in inflation is like a pressure release valve for the Fed,” said James Allen, certified financial planner and founder of Billpin. “It gives them some breathing room and a bit more flexibility in their decision-making.” While a slowdown in inflation may signal there’s no need to raise rates now, the Fed is walking a tightrope to balance keeping inflation in check without risking stifling economic growth, said Allen.

A potential fed rate hike has a different impact on savers, borrowers and investors. If rates go up, borrowing becomes more expensive, which can slow down investment and spending, Allen explained. But higher interest rates can be good news for savers, as savings rates and yields on certificates of deposits (CDs) would likely increase. 

Savings and CD rates are changing rapidly across banks and accounts. Experts recommend comparing rates before opening an account to get the best APY possible. Enter your information below to get CNET’s partners’ best rate for your area.

Over the past year, interest rates on some savings accounts have increased almost tenfold. And you can still get anywhere from 4% to over 5% annual percentage yield or APY on your investment. But that could change depending on what the Fed does next. 

Here’s a closer look at where rates stand now and what experts predict will happen at this week’s meeting. 

Some banks pushed rates higher ahead of the Fed meeting

Rates for only three CD terms increased this week -- nine-month and one-year CDs. Ally and Capital One increased rates for the nine-month term to 5.00% and 4.30%, respectively. Meanwhile, Capital One also increased its one-year CD APY to 4.85%, and it was the only bank to increase its two-year CD to 4.35%. Rising Bank bumped its one-year CD up to 5.36%, as well. 

Two banks increased high-yield savings account rates past 5%. UFB Direct’s savings APY is now 5.06%, while TAB Bank is offering 5.02%. Otherwise, all other banks kept rates the same. 

With some banks holding rates high and others offering competitive increases weekly, it’s best to compare rates before opening an account. Many online-only banks offer between 4.50% and 5.00% for CDs and savings accounts, which will get you a profitable return on your investment. Here’s a look at CNET’s average CD and savings rates to use as a guide. 

CD termAverage APY
6-month4.67% APY
1-year5.09% APY
3-year4.24% APY 
5-year4.02% APY
Rates as of July 24, 2023.
Average high-yield savings account APY4.72% APY
Rates as of July 24, 2023.

What to expect at July’s FOMC meeting

The current state of inflation heavily impacts what the Fed will do next. If inflation is higher than what the Fed wants, the Federal Open Market Committee raises rates as a lever to lower inflation. Last year, inflation was at 9.1%, higher than in 1981, when inflation hit 8.9%. And even though inflation is now down to 3%, that won’t stop the Fed from raising rates at this week’s meeting, some experts say. 

“The Fed is still focused on the strong labor market and the impact it could still have on inflation,” said Adam Coons, certified financial analyst at Winthrop Capital Management. “The Fed seems intent on reaching their 2% inflation target as soon as possible.” He predicts that the Fed will raise rates one more time this week by 25 basis points. 

Coons also predicts a softening labor market -- which can mean layoffs and fewer available jobs. If there’s another dip in inflation, it could lead the Fed to ending rate hikes for the foreseeable future. 

Given the risky inflationary environment for the Fed, Massud Ghaussy, a senior analyst for investor relations at Nasdaq, echoes Coons’ predictions for a 25 basis point rate hike on Wednesday. The Fed is particularly eyeing core inflation -- which measures the change in price for goods and services excluding the more volatile food and energy sectors -- because it can offer a more precise view of the state of the economy. Ghaussey notes that core inflation, which now sits at 4.8%, hasn’t dropped to the desired level. 

Another concern is that a collapse in the jobs market may force the Fed to prematurely ease monetary policy and cause inflation to go back up. Ghaussey noted that investors are also watching the commercial real estate market as the next potential downfall impacting the economy, and the risk of unexpected events, similar to the Silicon Valley Bank failure. Therefore, the safe bet is to hike rates again. 

But nothing is certain. With inflation easing, some experts believe the Fed will hold the federal funds rate steady for now. “They might not feel as compelled to immediately tighten monetary policy, such as raising interest rates, which is often the go-to move when inflation is high,” said Billpin’s Allen. 

“Based on the current climate of lower inflation, I anticipate the Fed might hold steady on interest rates,” said Allen. Noting that the central bank is trying to achieve the right balance, Allen predicts the Fed will likely remain cautious and adjust rates if inflation increases or economic growth starts to cool at future FOMC meetings.

What the Fed’s next move could mean for savings and CDs rates

Usually, in a higher-rate environment, most online-only banks increase rates for high-yield savings, money market and CD accounts to bring in new account holders. When and by how much these rates go up depends on the bank.

“The federal funds rate has the most impact on short-term deposit rates,” said Ken Tumin, LendingTree’s senior economist. But long-term CD rates may not move much, since those rates are impacted by how banks believe the economy and inflation will evolve in the future, not so much immediately. “If we continue to get good news on inflation in the coming months, expect long-term CD rates to slowly fall,” added Tumin. 

If the Fed carries out its 11th rate hike since 2022, it does not mean the yields for these accounts will soar. Banks could see Wednesday’s meeting as the last rate hike for a while, which means you likely won’t see big increases in high-yield savings or CD rates -- regardless of the term.

If the Fed pauses rates, you can expect banks to go in different directions. Some may raise rates to remain competitive, while others may slowly dip rates or keep rates the same until there’s a clear direction of where the economy is going. 

What to do with your money for now

You can’t control what the Fed does next or what the banks will do with savings rates. But now’s a good time to earn a higher-than-average return on your money. Here are a few options depending on your goals. 

Build a CD ladder

If you’d rather remain flexible to see if rates go higher, you may choose a CD ladder to spread your savings across several terms and have money available sooner if rates continue to increase. For instance, you might open a six-month, one-year, three-year and five-year CD. When your six-month CD matures, you may lock your money in a five-year CD if experts signal that rates will fall soon. If rates are still going up, you may stick to shorter terms to access the money sooner without incurring early withdrawal penalties. 

Stash cash in a high-yield savings account 

You could keep your savings in a high-yield savings account to have greater flexibility with your money. But keep in mind that this account has a variable rate that can go up or down over time. You won’t be able to lock in an APY for a fixed period of time like a CD. 

Regardless of where rates are, a high-yield savings account can come in handy for your emergency or sinking funds. You’ll have access to the money when you need it, and for now, you can earn a good amount of interest on your savings. 

Lock in a CD now

Some experts believe it’s a good time to lock in a long-term CD, depending on your long-term goals, and especially if you don’t want to risk volatility in the stock market. By locking in a long-term CD, you’ll have a guaranteed return on your investment without risking your deposit. 

As a note: You should never lock all your money up in a CD in case you need cash before your term ends. Instead, it’s best to keep some money readily available and only put money in a CD that you know you won’t need for the term. 

Dashia is a staff writer for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.