How interest rates have changed even as the Fed holds steady

Higher rates mean that consumers have to pay more to service their debt, but it also means that banks pay higher rewards to savers. It’s one of the silver linings to the current rate environment, said Ted Rossman, chief credit card analyst at Bankrate.

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

That top rate is considerably higher than the national average for savings rates overall, which has been just below 0.6% for the past two months. But even that overall average is more than double its level of 0.23% 12 months ago.

Rossman added that plenty of high-yield savings accounts, mostly available online, are still paying close to or even above 5%. These kinds of accounts keep money easily accessible while earning solid returns and are great options for emergency savings.

Interest rates on savings accounts are higher than they’ve been in decades, but there has been recent softening in returns on certificates of deposit, data from the U.S. Federal Deposit Insurance Corp. shows.

The average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from its high in December and January, according to the FDIC.

Despite the dip, 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 Federal Reserve initiates its rate cuts.

“There’s been remarkable stability at the top of this market, even though we expect cuts are coming,” he said. “These shorter-term rates don’t tend to move until the Fed moves.”

Until then, savers should take full advantage.

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

“Sometimes rates bounce around a little bit if offers come on and off the market,” Rossman said, but “we’ve plateaued since that last rate hike as of late July.”

The key for consumers to remember is that credit card debt is expensive, and that will still be true even after the rate cutting starts, he said.

“The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if rates fell a couple of points in a couple of years, they’d 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 lets consumers carry balances from one credit card to another for a low fee and an extended period of no or low interest.

Rossman added the offers from balance…