Where Savers Could Put Their Cash After the Fed’s Interest-Rate Increase
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Here's your money briefing for Tuesday, August 1st. I'm J.R. Whelan for The Wall Street Journal. The Federal Reserve has been steadily raising interest rates for the past 18 months. That's created an opportunity for savers to take advantage of higher interest paid on money they've put away.
It makes it a lot more lucrative to keep your money in one place or a couple of places. And that includes CDs, high-yield savings accounts, bonds, things like that.
We'll talk to Wall Street Journal personal finance reporter Oyen Adedoyen after the break.
Listen at schwab.com slash washingtonwise.
Where should savers put their money now that the Federal Reserve has raised interest rates to their highest level in 22 years? Wall Street Journal personal finance reporter Oyen Adedoyan joins me. So, Oyen, first of all, take us behind the scenes for a moment. What's the correlation between the interest rates the Fed has been raising and the rates that we see on things like savings accounts and CDs?
The Fed is trying to raise interest rates in order to curb inflation and keep people from borrowing and spending money. So it makes that process more expensive. But the inverse effect happens for savings accounts. It makes it a lot more lucrative to keep your money in one place or a couple of places. And that includes CDs, high-yield savings accounts, bonds, things like that.
So interest rates are at their highest level in more than two decades, and some have speculated that the Fed could hold them steady or even reduce them in the coming months. Does that mean that it's too late for savers to take advantage of the higher rates?
Financial advisors told me that it's not too late, but savers should be looking at this moment right now, if they haven't put their money into any of those devices yet, to start shopping around and seeing which ones have the best rates.
All right. So let's talk about CDs, certificates of deposit.
How are rising Fed interest rates creating opportunities for savers?
They've gotten a lot of attention as of late. Why do people invest in them?
CDs have really seen a comeback in the past couple of years. There was even a reference to them in the Barbie movie.
In the Barbie movie?
Yes. In the Barbie movie, right around the middle of the movie, there's a big CD reference and it's hilarious.
I haven't seen it yet.
Oh, my goodness. You have to go.
OK. If it's a CD reference, I have to go.
Exactly. No spoilers, but I'll tell you what happened. There's basically this scene where someone in the movie doesn't know what a CD is. And that's when another person in the movie takes that opportunity to explain what a CD is. And a CD or certificate of deposit is basically a document. a high-yielding savings account that matures over a specific amount of time. And what that yield is is probably going to vary from bank to bank, but you can take out a CD for as little as three months or as long as five years.
And you have to keep it in that account for that duration of time?
Yes, you have to keep the money in that account, and if you take your money out early for whatever reason, there's usually a penalty.
So what are ways that people can get an attractive interest rate with a CD?
Well, people have already probably seen these interest rates in their bank accounts from whatever bank they belong to, usually advertising high yields for a shorter amount of time. So this is an opportunity that financial advisors and experts told me that banks can take advantage of this high yield environment, but not have to commit to that same yield for longer.
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