The Fed's Latest Decision on Interest Rates Is Great News for Savers. Here's Why

U.S. consumers have spent the past few years grappling with elevated living costs. And the Federal Reserve has been trying its best to cool that rampant inflation.

In 2022 and 2023, the central bank implemented a series of interest rate hikes that drove the cost of borrowing up. The idea was to encourage a pullback in consumer spending, thereby allowing the cost of goods and services to come down.

Since inflation has improved, many experts are anticipating that the Fed will cut interest rates in 2024. And the central bank itself has even stated that's its intent.

But in its May 1 meeting, the Fed opted not to cut interest rates. Instead, it held its benchmark interest rate steady. And while that's not the best news for consumers looking to borrow money, it's great news for people with money in the bank.

Your impressive savings account rate might stick around for longer

While the Fed's interest rate hikes have been a burden for consumers needing to sign loans or carry credit card balances, they've been great for people with money in the bank. That's because savings account rates have been up since the Fed started raising rates. And given that the Fed didn't cut rates this month, it means savers might get to enjoy their higher interest rates for longer.

CD rates are still holding strong, too

The Fed's interest rate hikes have also had a positive effect on CD rates. These days, you can find shorter-term CDs paying upward of 5%. That's a pretty sweet return, considering that CDs are virtually risk-free provided you bank at an FDIC-insured institution.

Because the Fed opted not to cut rates in May, you now have an opportunity to open a CD while rates are still strong and lock in a great deal. Of course, if you're struggling with higher living costs, that may be a challenge. But if you're sitting on newfound money -- for example, if your tax refund recently arrived or you just received a pile of cash back from one of your credit cards -- then you may be in a good position to open a CD and lock in an attractive rate, whether for six months, 12 months, or longer.

In fact, it could pay to set up a CD ladder. Instead of tying up all of your cash in a single CD with a single maturity date, divide your money up into multiple CDs that come due at different times. This could give you access to your money more regularly, which is an important thing with CDs given that many banks impose a penalty for taking an early withdrawal.

While the Fed's latest decision on interest rates may be disappointing for borrowers, savers should be in the opposite boat. So if you have money you don't need for emergencies or near-term goals, consider opening a CD or setting up a CD ladder. And if you're not ready to commit to a CD, pad your regular savings account now to take advantage of higher interest rates while they're still available.