The Trump administration’s tariffs regime has disrupted markets, darkened the outlook for employers and businesses and hammered consumer sentiment. That’s why it’s more important than ever to take control of what you can financially. That can start with making sure your savings are earning the best returns possible and are parked in the right types of accounts, given your needs and time horizon. Since the Federal Reserve on Wednesday decided not to lower its key overnight lending rate, which affects interest rates throughout the economy, you can still earn a very healthy yield on your cash. That’s good news since economists believe inflation — which came in at 2.3% in March – will be going up this year as a result of the tariffs. By how much? Joe Brusuelas, chief economist at RSM US, told CNN’s Alicia Wallace he expects both headline and core inflation to top 4% later this year. So you’ll want to look for returns on your cash that can match or beat that expectation. Savings you need to access easily For money you’re setting aside for emergencies or for near-term but not immediate cash-flow needs, consider using: FDIC-insured online high-yield savings accounts: Having a checking and savings account at one of the big brick-and-mortar banks is great for money needed to pay monthly bills, groceries and other everyday expenses. But for other money you want at the ready for less regular expenses, you’ll get a much better rate in a high-yield savings account at an online FDIC-insured bank. All bank savings rates are variable — so will fall if the Fed lowers its benchmark rate later this year. But, for now, many of the highest-yielding online savings accounts are paying between 4% and 4.4%, versus roughly 0.1% at the biggest banks like Chase, according to Bankrate.com. FDIC-insured online money market accounts: Another online banking option that pays very competitively are money market accounts. “The average MMA yield at brick-and-mortar banks is a scant 0.41%, whereas the top-yielding, nationally available MMAs offered by online banks pay 10 times that amount, 4.1% or more. Ten times the return, while still being fully covered by federal deposit insurance and (offering you) access to the money when it is needed,” said Greg McBride, Bankrate’s chief financial analyst. Savings you can park for a while For money you’ve set aside for down-the-line expenses like a down payment or a year or more of living expenses if you’re retiring soon, you can lock in advantageous rates now through: Treasuries: Treasury bills come in six different maturities, ranging from four to 52 weeks. Treasury notes mature in two, three, five, seven and 10 years. If you buy one and hold it to maturity, you will lock in a rate of return that is higher than inflation while also preserving your principal. If you want to know how much you’ll make by holding it to maturity, “It’s hard to beat,” said Ken Robinson, an Ohio-based certified financial planner who is part of Wealthramp, a network of experienced, fee-only advisers. As of Tuesday evening on Schwab.com, Treasury bills were offering average yields ranging from a low of 3.88% to a high of 4.33%, while Treasury note yields ranged from 3.78% to 4.28%. Interest paid on Treasuries is exempt from state and local income taxes, so may be a good option if you live in a high-tax area. Know, though, that if you sell a Treasury before it matures, that can trigger a capital gain or loss on the price you get for it. AAA-rated municipal bonds: The tax advantages of high-quality municipal bonds are particularly favorable for those in high-tax states, and especially people in the top income tax brackets. The interest you earn on munis, which are issued by state and local governments, is exempt from federal income tax. It also may be exempt from state and local taxes if you buy one issued by your home state. “(Highly rated muni bonds) have a supremely strong record of paying what they’re supposed to when they’re supposed to,” Robinson said. As with Treasuries, he noted, the key to getting the most out of a municipal bond is to hold it to maturity. Certificates of deposit: CDs from FDIC-insured banks are a reliable place to park money that you can afford to lock up for a fixed period. For instance, CDs with maturation periods ranging from 3 months to five years were all offering average yields over 4% on Schwab.com. A good number of individual one-year CDs were offering a return between 4.5% and 5%. Keep in mind, earnings on a CD are subject to federal, state and local income taxes. In addition, if you buy a CD direct from a bank, you may pay an early withdrawal penalty if you cash it out before maturity, although such a penalty will be tax deductible. If you buy a so-called “brokered” CD on a brokerage platform — which offers you a much wider range of CDs to choose from — you might lose money on your principal if you don’t hold it to maturity and instead sell it into the secondary market at less than you bought it for, Robinson noted. Money market mutual funds: Money market mutual funds are currently averaging 4.14%, according to Crane Data, with some funds paying close to 4.4%. Unlike with fixed-rate bonds, Treasuries or CDs, you can’t lock in a rate of return with a money market fund. But it’s an easy, one-stop shop to park money that will always get the best cash yields on offer. Money market funds, which invest in government and corporate debt securities, are considered low-risk investments that usually maintain a price of $1 a share, although there have been a few times when they “broke the buck” and traded below $1 a share. If the fund invests in top-rated municipal securities issued by your home state, your returns may be tax-free. Unlike money market accounts, money market mutual funds are not federally insured. Rates on debt not budging much There is nothing encouraging to say about interest rates on debt other than at least the Fed didn’t choose to raise rates, which would make your prospects for finding an affordable loan worse. That said, how you manage your debt is ultimately way more important than any move the Fed makes. Credit cards: Even if the Fed were to make dramatic rate cuts, the interest you pay to borrow money on a credit card likely will remain sky-high. In fact, the average credit card rate actually rose to 20.12% as of April 30 from 20.09% the week before, according to Bankrate.com. The best thing you can do if you carry high-rate credit card debt is to see if you can get a 0% balance transfer card, said Matt Schulz, chief consumer finance analyst at LendingTree. That will buy you up to 21 months interest free, during which time you can direct as much money as you can to paying down your balance. Mortgages: As of May 1, interest rates on the 30-year fixed-rate mortgage averaged 6.76%, according to Freddie Mac. That’s 0.05 points lower than the prior week, and just under half a point below the 7.22% average recorded around May 1 last year. “For those shopping for a home this summer, rates are likely to stay in or around (the 6.6% to 7%) range in the near future. Even a rate cut from the Fed may not send mortgage rates lower, as the Fed doesn’t impact mortgage rates directly the way they do with credit cards,” Schulz said. Car loans: Financing a car purchase is always a little complex. But the math is harder now. “Today’s car shoppers are contending with the difficult duo of elevated vehicle costs and high borrowing rates,” said Joseph Yoon, a consumer insights analyst at Edmunds.com. “Adding to this scenario is the ambiguity surrounding tariff repercussions on vehicle supply and, consequently, their price tags, forcing buyers to navigate an ever-more complicated shopping path.” In April the average amount financed for a new car rose about $400 to $41,444 at 7.1% interest over 69 months, with an average monthly payment of $744, according to data from Edmunds.com. For used cars, the average loan amount was up about $600 to $28,855 at 10.9% over 69.5 months, with an average monthly payment of $555. Yoon’s advice: Be really clear what your needs are for a new car versus your wants — including things like size and desired features. Then shop around for the best deals and carefully compare loan offers. To help with the math, Edmunds.com has a car loan interest calculator.
The Fed leaves its key interest rate as is. Here’s how you can benefit
TruthLens AI Suggested Headline:
"Federal Reserve Holds Interest Rates Steady Amid Rising Inflation Concerns"
CNN
8.0
TruthLens AI Summary
The Federal Reserve's decision to maintain its key interest rate has significant implications for consumers and investors alike, especially in the context of rising inflation influenced by tariffs. As inflation rates are expected to exceed 4% later this year, individuals are encouraged to take proactive steps to ensure their savings yield competitive returns. With high-yield savings accounts from online banks offering rates between 4% and 4.4%, compared to the meager 0.1% from traditional banks, it becomes crucial for savers looking to maximize their returns. For emergency funds or short-term savings, options such as FDIC-insured high-yield savings accounts and money market accounts can provide enhanced liquidity and interest rates that outpace inflation. Notably, the average yield for money market accounts at online banks can be ten times higher than their brick-and-mortar counterparts, making them an attractive choice for consumers seeking better financial management options.
For those with a longer investment horizon or specific future expenses, strategies involving Treasury securities and municipal bonds can offer substantial benefits. Treasury bills and notes provide secure investment options with yields that can outstrip inflation while preserving principal, particularly advantageous for retirees or those saving for significant purchases like a home. Similarly, AAA-rated municipal bonds offer tax-exempt interest, which can be especially beneficial for high-income earners in states with high tax rates. Certificates of deposit (CDs) also remain a reliable choice, providing fixed returns of over 4% for various maturities. However, potential investors should be aware of the tax implications and penalties associated with early withdrawals. As the economy navigates the challenges posed by tariffs and inflation, understanding these financial tools will empower consumers to make informed decisions that enhance their financial stability and growth potential.
TruthLens AI Analysis
The article addresses the Federal Reserve's decision to maintain its key interest rate, amidst ongoing economic uncertainty influenced by the Trump administration's tariffs. This decision is significant as it reflects the Fed's stance on inflation, which is projected to rise, and it emphasizes the importance of strategic financial management for consumers in light of these changes.
Economic Context and Consumer Impact
The backdrop of tariffs disrupting markets and affecting consumer sentiment sets the stage for the Fed's decision. By not lowering the interest rate, the Fed is signaling a cautious approach, potentially to avoid further inflationary pressures. The article encourages readers to reassess their savings strategies, particularly in online banks offering higher interest rates compared to traditional banks. This guidance aims to empower consumers to maximize their financial returns, highlighting the disparity in interest rates that can be leveraged for better savings yields.
Inflation Expectations
Economists anticipate that inflation will exceed 4% later in the year, driven by the tariffs. This expectation is crucial for consumers, as it underscores the need for savings accounts that can at least match inflation rates, thereby protecting the purchasing power of their money. The emphasis on matching returns to inflation suggests a proactive approach to personal finance management, aiming to mitigate the risks associated with rising prices.
Target Audience
The article seems to target financially aware individuals who are looking for ways to optimize their savings in a volatile economic environment. It resonates with those who may feel the impact of inflation directly on their finances and encourages them to seek better financial products. The focus on online high-yield accounts suggests a demographic that is comfortable with digital banking and seeking higher returns.
Potential Manipulation Factors
While the article provides valuable financial advice, it could also be seen as a subtle push towards online banking institutions, potentially benefiting those banks over traditional ones. This could raise questions about the objectivity of the advice given, particularly if there are underlying motives tied to promoting specific financial products.
Market Implications
The Fed’s decision and the accompanying advice could influence market behavior, particularly in sectors related to banking and finance. Stocks of online banks may benefit from increased deposits as consumers seek better yields. The overall sentiment around consumer spending could also be affected, as higher inflation expectations might lead to caution in discretionary purchases.
Broader Economic Implications
This article reflects broader economic concerns that resonate with current debates about fiscal policy and consumer confidence. The mention of tariffs and their impact on the economy connects to ongoing discussions about trade and economic strategy in the U.S., which remains a pivotal issue in the political landscape.
Use of AI in Article Composition
There’s a possibility that AI tools were utilized in crafting this article, particularly in structuring the advice and analyzing financial data. However, the human touch in framing the narrative and addressing consumer concerns indicates a balanced approach to content creation.
In conclusion, while the article serves a practical purpose in guiding consumers through a challenging economic landscape, it also has implications for how financial advice is presented and who stands to benefit from such guidance. It is relatively trustworthy, providing accurate information while also encouraging consumers to be proactive about their savings.