How interest rates have changed even with the Fed holding steady

Higher rates mean that consumers have to pay more to service their debt, but it also means that banks pay higher bonuses to savers. It's one of the positive aspects of the current rate environment, said Ted Rossman, senior credit card analyst at Bankrate.

“There has also been notable stability at the top of this market,” Rossman said. “The highest savings rate now is 5.35%.”

This higher rate is well above the national average for savings rates overall, which was just under 0.6% over the past two months. But even this overall average is more than double its level of 0.23% 12 months ago.

Many high-yield savings accounts, most of which are available online, still pay close to 5% or even more, Rossman added. These types of accounts make funds easy to access while generating strong returns and are great options for emergency saving.

Interest rates on savings accounts are higher than they have been in decades, but there has been a recent decline in yields on certificates of deposit, data from the US Federal Deposit Insurance Corporation show.

The average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from the highs in December and January, according to the Federal Deposit Insurance Corporation (FDIC).

Despite the decline, CDs are good savings vehicles that avoid risk but still provide a return if you're willing to tie up your money for a set period of time, Rossman said. The current environment will likely remain good for savers until the Fed starts cutting interest rates.

“There has been remarkable stability at the top of this market, although we expect reductions,” he said. “These short-term rates tend not to move until the Fed does.”

Until then, savers should take full advantage.

The flip side of the positive environment for savers is the expensive credit card market: Consumers who carry balances on their cards face historically high rates. The average credit card rate has been well above 20% over the past 12 months and will continue to stay at that level for some time, Rossman said.

“Sometimes interest rates go up a little bit if offers come in and out of the market, but we have stabilized since the last rate hike from late July,” Rossman said.

The key thing for consumers to remember is that credit card debt is expensive, and that will remain true even after interest rates start cutting, he said.

“The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if interest rates drop a few points in a couple of years, they will still be high.”

His best advice for consumers is to prioritize paying off credit card debt, if possible with the help of a balance transfer card, which allows consumers to carry balances from one credit card to another for low fees and an extended no- or low-interest period.

Rossman added that the offerings from balance transfer cards remain very favorable with low fees and generous repayment periods.

“The balance transfer market was remarkably stable and strong,” he said. “It indicates a strong job market and a strong economy. People are paying those bills again,” despite the fact that more consumers, on average, are carrying more expensive debt.

While savings and credit card rates are highly sensitive to the Federal Reserve's maneuverings, the area that may see the most movement is housing.

“Unlike some of these other products, mortgage rates tend to move before the Fed because they tend to track 10-year Treasuries,” Rossman said. “It's more about investors' expectations for the Fed and economic growth.”

This is reflected in the data. Mortgage rates peaked in October 2023 at about 8%, followed by a steady decline. After a brief jump in February, they appear to be back to where they were at the beginning of 2024, when the 30-year mortgage interest rate was about 6.6%.

“We think there's a good chance the average 30-year mortgage will reach about 6% by the end of the year,” Rossman said, which would be a much-needed reprieve for a highly competitive housing market that remains in short supply.

High mortgage interest rates have prevented many sellers – who remain locked into lower interest rates than in past years – from putting their homes on the market. Rossman said lower prices could push them back on the list.

“As we got closer to the 6% and then eventually to the 5% area, that led to some people coming off the fence and listing their homes and then the inventory improved,” he said. “This gives some relief in terms of price to potential buyers.”