The Fed just paused its rate cuts. Here’s the best way to make that work for your money

By Jeanne Sahadi, CNN

(CNN) — After weighing a slightly lower unemployment rate and a hiring slowdown with small increases in inflation in December, the Federal Reserve on Wednesday decided to leave its key overnight lending rate untouched. That decision follows the three cuts the Fed made last year, for a total of six cuts since September 2024.

The Fed rate, of course, influences – directly or indirectly – the rates on consumer savings and loan products throughout the US economy. And therefore it affects what you’ll make on your money and pay on your debts.

What you should do in the wake of any Fed rate decision depends on whether your savings are well positioned to get the highest yield available and whether the interest rates you pay are as low as they can be, given your credit score and personal situation.

Here is where things stand as of this week to give you a point of reference:

Your savings

For money you don’t want to risk but which you want to grow faster than inflation, you have several options. With each, consider their tax bite and the ease of access to your funds when you need them.

Online high-yield savings accounts: Some of the best yields you’ll get on savings that you’ll need quick access to (e.g., for emergencies, an upcoming trip or a down payment) can be had in FDIC-insured online high-yield savings accounts.

As of Wednesday, some of the best variable rates on offer for such accounts were 4% or more, while others ranged between 3.65% and 3.99%, per Bankrate.

The top five highest rates available for online high-yield savings accounts were between 4.25% to 4.60% so far this week, according to Ken Tumin, co-founder of DepositQuest.com. Tumin also found that the average rate on the five biggest online high-yield savings account providers (e.g., from Ally, Marcus and Capital One) has fallen from 4.31% to 3.44% since the Fed started cutting rates in September 2024.

Interest you earn from high-yield accounts will be subject to federal, state and local income.

Certificates of deposit: For a stable place to park cash you won’t need right away, you might get a brokered certificate of deposit (meaning you can buy it through your brokerage). Or you may buy one directly from your bank.

On Wednesday, for instance, some of the best-paying CDs with durations from three months to five years offered rates between 3.75% and 4.05% on Schwab.com.

Among 12-month CDs directly available from banks, meanwhile, you might get a slightly higher rate (4.00% to 4.20% APY), Tumin said.

If you take money out of traditional CDs before they mature, you may forfeit some interest as a penalty. But there are still a few “no-penalty” CDs with attractive rates that don’t penalize you for early withdrawals and offer a competitive alternative to online high-yield savings accounts, he said. Among them, a 3.95% 13-month CD from Marcus and a 3.9% 11-month CD from USALLIANCE Financial Credit Union.

The interest you earn on CDs will be subject to federal, state and local income.

Money market funds and deposit accounts: A money market mutual fund invests in highly liquid, low-risk, short-term debt instruments. It is not FDIC-insured but may be insured through the Securities Investor Protection Corporation if you buy one through your brokerage.

The average 7-day yield on money market funds was 3.50% on Wednesday, according to Crane Data.

By contrast, your bank may offer a money market deposit account, which is FDIC insured. It may, however, have a higher minimum balance requirement than your checking or savings account, but like those it may offer check-writing privileges and ATM access.

Some of the highest rates available on money market deposit accounts come from online bank offerings. As of Wednesday, some of the best rates on offer were between 3.25% and 4.10%.

The interest income you earn from money market mutual funds and deposit accounts is subject to federal, state and local taxes.

US bonds: US Treasuries, backed by the full faith and credit of the US government, are considered one of the safest but also most liquid investments, since they are easy to sell if you don’t want hold them to maturity. (Although if you sell a bond before it matures, you might lose some principal if you can’t get the original price you paid for it, or you might sell it for more than you paid, in which case you’d realize a capital gain.)

On Wednesday, US Treasuries with durations of three months to five years on offer at Schwab.com had rates between 3.57% and 3.86%.

Interest income from Treasuries is exempt from state and local income taxes. But any capital gains you realize would be subject to federal, state and local income taxes.

Another alternative if you live in a high tax state or city might be a low-cost Treasury money market fund, which is also exempt from state and local taxes, Tumin said.

Municipal bonds: A relatively safe bet for money you might not need for a couple of years are top investment-grade munis, which provide tax-advantaged income.

Muni bond income is typically exempt from federal income tax — and sometimes state and local income taxes too, if you buy one issued by your home state or city.

AAA-rated munis with durations of three months to five years on offer at Schwab.com on Wednesday were offering yields between 2.12% and 2.79%.

Your debts

The Fed lowering rates over the past 16 months has helped save consumers some money but that downward trend is now on pause.

“Borrowing costs – though noticeably lower than the highs seen in 2023-2024 – are likely to remain stable for the time being,” said Charlie Wise, senior vice president of research at TransUnion, in a statement.

That said, if you’re still paying higher-than-average rates consider taking some steps to lighten your burden.

Credit cards: Even though the Fed has cut its key overnight lending rate by a total of 1.75 percentage points since September 2024, the average credit card rate has only dropped by half a percentage point during that same period. As of Wednesday, that average stood at 19.61%, according to Bankrate.

The average annual percentage yield on a new credit card is worse – 23.79%, according to Matt Shulz, chief consumer finance analyst at Lending Tree. While that is better than the 24.92% registered in September 2024, it’s still crazy high.

In an example Shulz offers, if you’re carrying a $7,000 balance and paying just $250 a month on it, either rate will cost you more than $3,000 in interest over 40-plus months.

A better bet in that scenario is to try to find a zero-rate balance transfer card, which can give you up to 21 months to pay off your principal interest free. Or, if you don’t qualify for a balance transfer card, at the very least call your credit card issuer and see if they can at least knock a few points off your current rate.

Mortgages: As of January 22, the 30-year fixed rate mortgage averaged 6.09%, up slightly from the week before (6.06%), when it hit its lowest level in more than three years. It’s also well below the 6.96% registered a year ago, according to data from Freddie Mac

“With the economy improving and the average 30-year fixed-rate mortgage nearly a percentage point lower than last year, more homebuyers are entering the market,” said Sam Khater, Freddie Mac’s chief economist, in a statement. “Buyers always should shop around for the best rate, as multiple quotes can potentially save them thousands.”

Looking ahead, certified financial planner Stephen Kates, Bankrate’s financial analyst, doesn’t see mortgage rates falling more “unless long-term Treasury yields move lower.” And, he said in an email, “ongoing concerns about federal deficits, foreign ownership of U.S. debt, and persistent inflation are likely to keep those yields elevated for the foreseeable future.”

Home equity: Borrowing against the equity in your home has gotten cheaper. But rates are still high enough that it shouldn’t be done lightly.

The average variable rate on a $30,000 home equity line of credit was 7.44% as of January 21, its lowest level in three years, according to Bankrate. That’s well below the 9.26% registered in September 2024, when the Fed started cutting rates.

Home equity loan fixed rates, meanwhile, averaged 7.92% on a $30,000 five-year home-equity loan; and 8.10% on a 10-year loan. Those are the lowest levels in a few years but still nearly double the historical lows of roughly 4% registered in 2022.

Auto loans: Financing a vehicle is not cheap. In December, new cars cost an average of $49,466, and $26,025 for used cars, according to data from Edmunds.com.

The average amount of dealer-arranged financing for new cars was $44,361 (an all-time high) and the average APR on new car loans was 6.5%, down a hair from the prior month.

On used vehicles, the average dealer-arranged loan totaled $29,943, with an average loan rate of 10.5%, down from 10.6% in November.

Meanwhile, the average monthly nut for car owners who financed their vehicles came to an all-time high of $781 for new cars, and $568 for used ones.

And Edmunds’ data indicates financial strain among those trading in their cards, with nearly a third showing negative equity, said Ivan Drury, Edmunds’ director of insights.

If you’re in the market to buy a car, don’t assume the newest model year automatically means better or worse financing, Drury said. “Right now, 2025 model-year vehicles make up about 23% of new-car inventory, yet their average APR is 6.72% — nearly identical to the 6.69% average for 2026 models. [S]hoppers should focus less on the badge year and more on which vehicle best fits their long-term needs,” Drury said.

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