How a pause affects your money

• Interest rates are the highest they’ve been in 15 years on high-yield savings accounts and CDs. Open one today to seize on the best rates.
• Credit card APRs are at record highs, so consider moving your debt to a balance transfer card.
• Mortgage rates are the highest they’ve been in decades. Look for pockets of opportunity to lock in a better rate.

For the second time in 18 months, the Federal Reserve chose to forgo a rate hike as it waits to see the longer-term impact of its efforts to tame inflation.

The federal funds rate will hold at 5.25%-5.50%, its highest level in 22 years — but the Fed didn’t rule out additional rate hikes before year’s end. 

“In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Federal Open Market Committee (FOMC) wrote in a statement accompanying the announcement. 

In other words, the FOMC wants to wait and see. 

Inflation has eased significantly over the past 18 months, but remains well above the Fed’s 2% target. Increases to the federal funds rate — what it costs banks to borrow from one another — make life more expensive for consumers, too. And the Fed hopes that financial pressure will cool the economy enough to bring inflation down. 

Pocketbooks are feeling the pinch from every side, but there are ways right now to improve your financial well-being. These three tips will help you grow your savings while being conscientious about your debt. 

Hint: If you’ve been putting off opening a high-yield savings account, today might be the day to do it.

Savers have benefited the most from the Fed’s aggressive rate hikes. The average interest rate on savings accounts has more than doubled this year alone — it was up to 0.56% as of September 11, according to Bankrate. 

As good as that news is, you can find rates that are significantly higher if you’re willing to consider an online bank. These banks, which don’t maintain many (if any) physical locations, tend to offer the best interest rates on savings accounts. In fact, rates on high-yield savings accounts at the best online banks are topping 5.00%. 

The same is true for CDs. While longer term CDs traditionally offer the highest returns, right now you’ll find the best rates on 1-year CDs.

Interest rates on deposit accounts will likely stay high as long as the federal funds rate is elevated, so don’t expect a pause to change much — although it could mean they won’t rise much more. What’s more, the pause signals that the Fed is beginning to slow down its campaign. Once it starts cutting rates, expect interest rates on deposit accounts to begin falling too. 

It’s worth shopping around now and moving your money into an account with a higher rate while you can. And, if you can afford it, park some of your money in a CD to guarantee a top-tier rate, even if the macroeconomic conditions change.

Americans are carrying more than $1.031 trillion in credit card debt, according to the Federal Reserve Bank of New York’s most recent data. If that sounds like an astounding number, it’s because it is — it’s a new record, breaking the one set just three months earlier.

Credit card APRs are at an all-time high as a result of the Fed’s rate hikes, with the average now sitting around 20.93%, according to CreditCards.com. So that mountain of debt is more expensive to pay off than ever before.

The simplest way to find relief is to open a balance transfer card that will allow you to whittle down your credit card debt at a lower interest rate. The best balance transfer credit cards offer  0% APR for an introductory period of at least 12 months, so your debt doesn’t grow while you’re paying it off.

Once you transfer your balance to the new card, come up with a plan for paying it down so you don’t find yourself in the same boat at the end of the intro period. Note that you can move balances from multiple cards to your new card, and research shows that consolidating debt to a product with a lower interest rate can save you thousands of dollars while you pay it off.

Mortgage rates have more than doubled since their pandemic lows. As recently as last month, the average for a 30-year fixed-rate mortgage reached a 22-year high, while mortgage purchase applications fell to 28-year lows.

While rates have come back down slightly in recent weeks, they’re still much higher than many homebuyers care to stomach. A pause from the Fed could eventually start cooling mortgage rates, but it will take some time.

Anxious homebuyers should monitor mortgage rates for windows of opportunity. Likewise, people who purchased homes when rates were at their peak should plan to refinance when rates drop by at least 0.75% — that’s when people generally start seeing a financial benefit. 

Rate timing can be tough, however, and it’s unlikely that mortgages will become much more affordable until the Fed starts cutting rates — something it’s not expected to do this year. Instead of holding out, some experts advise a “marry the house, date the rate” strategy where you go ahead and purchase your dream home with the intent to refinance once rates fall.

The Fed chose to watch the economy for signals that it’s cooling rather than hike interest rates again. “Now that we’re getting closer, we have the ability to proceed carefully,” Fed Chair Jerome Powell said during a press conference after the announcement. 

During this holding period, interest rates will likely stay high on deposits but also on borrowing. To put yourself in the best financial position, move money into a high-yield savings account or CD, and figure out ways to lower the cost of debt. Rates will likely stay high for the foreseeable future, so actions you take now will have an impact for some time to come.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as the Home and Financial Services Editor for the Hearst E-Commerce team. Email her at [email protected].