Knowing how the Federal Reserve’s monetary policy decisions impact your interest earnings over time is key to making an informed decision about where to put your money. And with a rate cut on the horizon, the best option may be a certificate of deposit (CD).

CDs can be a smart way to guarantee steady returns, especially if interest rates are expected to fall in the near future. Here's why you may want to consider opening a CD before the Fed's next meeting.

The federal funds rate is the target interest rate set by the Federal Reserve. It determines the rate that banks charge one another to borrow funds overnight in order to meet reserve requirements.

The federal funds rate is expressed as a range, which is currently 4.25%–4.50%. Banks negotiate a specific rate between each other within that range.

The Fed uses the federal funds rate as a tool to quell inflation. When inflation is high, the Fed raises its target rate to make borrowing money more expensive, which discourages consumer spending and helps bring everyday costs down. When the economy needs a boost, the Fed might initiate a series of rate cuts to encourage more spending and borrowing.

Read more: A look at the federal funds rate over the past 50 years: How has it changed?

Changes to the federal funds rate have major implications for financial institutions and the economy at large. But these decisions also affect your bottom line.

Although the Fed’s rate doesn’t directly impact the interest rates set by individual banks for consumer deposit accounts and loans, they are closely correlated. When the Fed raises its rate, for example, interest rates on deposit products — including CDs — also tend to go up. And when it lowers its rate, deposit interest rates generally fall.

The Fed will meet again on September 16-17 and decide whether or not to adjust the federal funds rate. In its last meeting, the committee held the target range for the federal funds rate steady at 4.25%–4.50%, which it has maintained since the last rate cut in December 2024.

As economic activity continues to expand at a solid pace, many wonder whether the Fed will cut its target rate this year. In its last meeting, the committee released the following statement:

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

Many experts believe the Fed will cut its rate in its September meeting, especially in light of a weak jobs report released earlier this month.

Even so, we can’t know for sure what will happen. So, while you wait for the Fed’s official announcement about how rates will change (or not), it could be a good time to evaluate where you're currently keeping your savings and consider opening a new CD.

Should the Fed decide to keep rates the same, it won’t have a direct impact on CD rates, which means now is as good a time as any to open an account and take advantage of historically high interest rates. As it stands, the best CD rates today hover around 4% and up.

However, if the Fed does decide to lower rates, now might be your last chance to lock in today’s competitive CD rates.

The Federal Reserve lowered the federal funds rate for the third time this year — and there may be more cuts next year.

Rate cuts can be cause for celebration, particularly if you're planning to buy a home or pay off debt. But you can also expect to earn less interest on bank deposits and some investments. In other words, now is a good time to reevaluate where you keep your savings and look for ways to maximize your interest earnings.

Interest rate reductions have several implications when it comes to banking and borrowing money. Here's what you can expect after a rate cut from the Fed:

Loans: If you have a fixed-rate loan, nothing will change. However, if you want to take out a new mortgage or car loan, for example, or refinance an existing loan, the interest rates offered by lenders will be lower. As a result, it's more affordable to borrow money since you’ll accrue less interest — and monthly loan payments may be lower, too.

Bank accounts: The annual percentage yield (APY), or interest you earn on bank deposits, decreases. As a result, you'll earn less on the cash you keep in your checking and savings accounts.

Low-risk investing: If you already have an investment account that gives you guaranteed returns, such as a certificate of deposit (CD) or Treasury bill, your rate will stay the same. However, the rates offered on new accounts will begin dropping.

The upcoming Fed rate cut is expected to be conservative, so you may only see gradual changes to your interest rates in the short term. However, more cuts are likely to come, so now is a great time to lock in high rates and prepare your next steps.

For your day-to-day cash and emergency savings, it's best to keep the money in the bank, since you need to maintain easy, penalty-free access to your funds.

But as banks reduce the interest rates offered on deposit accounts (which they can do at any time), your balances will earn less. As a result, you'll want to check the APY on your bank accounts and shop around to see if you can earn a higher rate elsewhere. Here are some bank accounts that might earn more than your regular checking or savings:

High-yield checking

High-yield savings

Online bank accounts

Read more: How do banks set their savings account interest rates?

When it comes to money you don't plan to use within the next few months, consider moving it out of your savings account and into a CD right away. By doing so, you could lock in around 4% APY or higher before rates take another hit.

In addition to comparing rates, look for CD accounts with longer terms, since the goal is to retain your high rate long past any future rate cuts.

This strategy is particularly useful for anyone who's been saving for a down payment on a home. By moving your savings into a CD, you can lock in a high APY while waiting for mortgage rates to drop. If you're not exactly sure when you'll need your money, you might also consider CD laddering, or opening up multiple CDs with staggered maturity dates.

Like CDs, Treasury bills are a good choice if you're saving up for a future expense and you want to lock in high rates before they start falling. At present, you can still get above 4% on several T-bill terms. However, the Fed's rate cut means these rates won't stay for long.

Before you buy a T-bill, compare the rates and terms with available CDs to see where you can maximize your earnings. And keep in mind that you don't have to pay state or local taxes on T-bill earnings.

Read more: CDs vs. Treasury bills: Maximizing your savings

As rates fall, you'll have to increase your risk in order to maintain or beat what you've been earning on cash deposits and fixed-income assets. That means that when your current CDs, T-bills, and bonds mature, you may want to move the money to your stock portfolio.

While rate cuts tend to be good for the stock market, it's too soon to tell how it will respond over the coming months. In other words, some patience is required. But while you're waiting to see how the market stabilizes, some experts suggest investing in stocks that are more sensitive to rate cuts, such as real estate investment trusts (REITs) and small caps.

Read more: High-yield savings account vs. investing: Which is right for you?

You may not think much about the federal funds rate day to day, but this key number impacts many areas of your financial life and the economy as a whole.

The Federal Reserve — the country’s central bank — periodically adjusts its target rate to keep the economy running smoothly and consumer prices in check. When the federal funds rate moves up or down, so do the interest rates on bank accounts and loans. In other words, changes in the Fed’s rate impact how much your savings can grow and how much you pay to borrow money.

Read more: Consumers catch a break as inflation continues to cool

So how does today’s federal funds rate compare to past years? Here’s a look at historical Fed interest rates so you can better understand how your bottom line is affected.

The federal funds rate is set by the Federal Reserve and dictates what a bank can charge another bank for ultra-short-term loans (usually overnight) in order to meet reserve requirements. It's expressed as a range, and financial institutions can negotiate a specific rate between each other within that range.

The Fed’s target rate also impacts the interest rates individual financial institutions set for financial products such as deposit accounts, bonds, loans, and credit cards.

In September 2024, the Fed lowered its target range by 50 basis points to 4.75%-5.00%. Then following its November meeting, the Fed once again decided to cut the federal funds rate by an additional 25 bps points, and another 25 bps in December. The target range is presently 4.25%-4.50%.

“The committee judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Fed said in a statement explaining the decision.

Prior to the recent cuts, the Fed had not adjusted the federal funds rate since July 2023. But this rate has fluctuated quite a bit in the past few decades in response to major economic and world events.

Here’s a look at the federal funds rate since 1970:

The federal funds rate soared in the early 1980s when inflation hit more than 13%, the highest level recorded. This marked the end of a macroeconomic period known as the “Great Inflation,” which economists believe was brought on by Federal Reserve policies that led to an overgrowth in the supply of money.

In response, the Fed raised interest rates, and the federal funds rate reached more than 19%.

In the late 1990s and into the early 2000s, there was another major economic shift when the Fed began bringing the federal funds rate down. This move was fueled by the dot-com bubble burst — a period of economic instability when investors poured capital into internet-based companies, which led to an overvaluation of many of these start-ups. Unfortunately, not all of these companies were profitable, and the fallout of this bubble burst led to many bankruptcies and a recession.

Then, following the terrorist attacks of Sept. 11, 2001, the Fed cut rates further due to widespread uncertainty and a slowdown in economic activity.

In 2007, the housing market crash prompted the Fed to once again lower its target rate to 2%. A series of rate cuts followed, eventually bringing the target range down to a range of 0%-0.25% — effectively zero — by December 2008.

As the economy recovered from the Great Recession, the Fed began slowly increasing rates again. But in 2020, the COVID-19 pandemic rocked the U.S. economy and brought about challenges such as supply-chain issues, reduced economic activity, and high unemployment. In March 2020, the Fed once again slashed rates to a range of 0%-0.25%.

Read more: How to recession-proof your savings

Begining in March 2022, the Fed increased its rate by 0.25 basis point increments to combat skyrocketing inflation, with a total of 11 hikes through July 2023.

However, as the inflation rate slowed and neared the Fed’s desired 2% target in September 2024, it decided it was time to begin cutting its target rate. The Fed cut rates a total of three times in 2024.

The next Fed meeting is slated for June 17-18, 2025 when the Federal Open Market Committee (FOMC) will decide whether or not to further adjust the federal funds rate. In its last meeting, the Fed announced that it would hold its target range at 4.25%-4.50%.

Though it's impossible to predict whether additional rate cuts are on the horizon, many economists expect the Fed to implement more rate cuts in 2025 and potentially in 2026 as well.

Read more: Should you open a savings account or CD before the Fed’s next meeting?

Following a series of cuts to the federal funds rate in late 2024, the Federal Reserve has since held its target rate steady despite pressure to make additional cuts in 2025.

Fed officials are adopting a cautious approach amid economic uncertainties, especially the impact of recent tariffs imposed by the Trump administration. They've emphasized the need for patience, suggesting that any rate changes should await clearer economic data.

However, President Trump has been vocal in his opposition to the Fed's decisions, to say the least. He described Fed Chair Jerome Powell as a "stubborn moron" after the Fed kept interest rates steady, urging for immediate cuts and suggesting the Fed board override Powell.

And on Monday, Trump took things even further, stating in a letter (which was subsequently shared on social media) that he removed Federal Reserve Governor Lisa Cook from her post — a move that critics say is illegal.

So, how much influence does the sitting president really have over Fed leadership and its monetary policy decisions? Here’s what you need to know.

Read more: 5 ways to tariff-proof your finances

The Federal Reserve doesn’t directly control interest rates set by individual financial institutions. The Federal Open Market Committee (FOMC) — the division of the Fed responsible for setting monetary policy — controls the federal funds rate. That’s the short-term interest rate that depository institutions charge each other to borrow money overnight.

Learn more: Federal funds rate: What it is and how it affects you

When the FOMC raises or lowers its target rate, banks typically follow suit. Rising rates generally make it more expensive for consumers to borrow money, but it also means they’ll earn higher rates on savings accounts, certificates of deposit (CDs), and money market accounts. Conversely, lowering rates decreases short-term interest rates on credit products and deposit accounts.

Here’s a look at how rates have changed since 2022:

U.S. presidents don’t have authority over the Fed, but they do have certain powers that can impact the future of the Fed and its decisions.

The chair of the Board of Governors of the Federal Reserve System leads the Fed in working toward its key goals, including maximum employment, stable prices, and moderate long-term interest rates. Some of the Fed chair’s responsibilities include reporting to Congress on the Fed's monetary policy objectives, testifying before Congress, and meeting periodically with the Treasury Secretary.

According to the Federal Reserve Act, the chair and vice chair of the board are appointed by the president but must be confirmed by the Senate. Fed chairs and vice chairs serve four-year terms and can be reappointed by the sitting president. They can also be ousted by a sitting president, although this has never happened.

The president also nominates the seven members of the Board of Governors who serve on the FOMC and oversee the 12 Reserve Banks. Each member is appointed for up to 14 years, which is considered a full term, after which they can’t be reappointed.

Again, the president also has the ability to remove a governor from their seat. According to the Federal Reserve Act, governors can be removed by the President “for cause,” which is generally understood to mean serious misconduct or inability to perform the job — not simply policy disagreements. Until now, no Fed governor has been removed by a president.

In his letter, Trump accused Cook of mortgage fraud, citing this as justification for firing her. The matter was referred to the Justice Department for investigation, though Cook has not been officially charged with any crime.

In a statement released by her attorney, Abbe Lowell, Cook said she would not step down, explaining that President Trump does not have cause and therefore, no authority to remove her. Lowell said Tuesday they would be filing a lawsuit to challenge what they called an "illegal action."

Though presidents can’t control interest rates directly, they can discuss their stance on current monetary policy and its impact on rates. But this can be a touchy topic.

“Institutionally, the Federal Reserve is very protective of its independence because that independence helps it achieve its mandate,” said Scott Fulford, a senior economist at the Consumer Financial Protection Bureau. “Most presidential administrations go out of their way to avoid even publicly commenting on Fed policy.”

Even so, that hasn’t stopped our current president from expressing his views on the Fed and its decisions.

For example, earlier this year, Trump posted on social media that Powell's termination as Fed chair "cannot come fast enough" and referred to him as "a major loser."

Experts maintain that the Fed will continue to make decisions independently. Still, this outside commentary can lead to campaign promises and political actions that impact inflation and consumer prices in other ways, according to Fulford.

“For example, this administration has focused on resolving supply chain problems and reducing monopoly rent-seeking, which reduces inflation,” Fulford said. “Congress could raise taxes or spend less, which would also affect inflation.” He added that there are many policies that affect the broader cost of borrowing as well, such as reducing late fees or closing costs.

Bottom line: The Fed is designed to operate independently of politics, but public statements by the president can shape market expectations and potentially influence the Fed's policy decisions indirectly.

Banks and credit unions can adjust their rates at any time at their discretion. You can’t control how rates change, but you can implement smart savings strategies to ride out interest rate fluctuations:

Consider a high-yield savings account. These savings accounts offer higher interest rates compared to traditional savings accounts. When interest rates fluctuate, you can be sure you’re still earning a competitive rate compared to the market average with a high-yield account.

Start now. Compound interest helps your savings grow exponentially over time. The earlier you begin saving, the more your balance will grow. Plus, you’ll have a head start if rates fall in the future.

Shop around. Whether you’re looking to open a new savings account or reevaluate the one you currently have, regularly reviewing the best savings rates available can ensure you’re not missing out on better opportunities.

Lock in your rate. If you think rates may fall soon, putting your money in a CD allows you to lock in competitive rates for the next several months or even years. Keep in mind that CDs require you to keep your money on deposit until the maturity date, otherwise you’ll be subject to an early withdrawal penalty.

The Federal Reserve has made its third consecutive rate cut since September.

During the The Federal Open Market Committee (FOMC) session on December 18, 2024, the Fed lowered its target federal funds rate range by 25 basis points (a quarter percentage point). That brings the current target to 4.25%-4.50%, down a full percentage point since the Fed began cutting rates earlier this year.

Throughout the high rate environment of the past couple years, the cost of credit card debt has greatly increased for some Americans:

Average credit card interest rates increased from around 16% in 2022 to over 21% today.

Credit card debt balances grew by 8.1% between Q3 2023 and 2024.

Total credit card debt surpassed $1 trillion for the first time in 2023.

In the past year, 8.8% of credit card accounts became delinquent (30 or more days past due).

But falling federal interest rates may not offer the relief you’re looking for. After all, plenty of factors influence your credit card’s interest rate. Despite the most recent rate cut — and any further cuts the Fed makes in 2025 — you shouldn't wait to begin paying down debt.

Credit card interest rates could change when the Federal Reserve lowers the federal funds rate, since many credit card APRs are variable and move over time. But don’t count on lower interest rates to make a significant difference in your credit card interest charges.

Even with the Fed's recent rate cuts, credit cards with APRs near 25% or 30% are likely to remain unaffected.

Consider, for example, the last time the Fed cut the federal funds rate. In February 2020, the federal funds target rate was 1.50%–1.75%, and the average credit card interest rate was 15.09%. By May, the US central bank had cut rates to a target 0.00%–0.25%, a drop of 150 basis points, to support the economy during the Covid 19 pandemic. But, average credit card rates fell only about half a point to 14.52%. They remained around there until rate hikes started again in early 2022. As of August 2024, the average credit card rate is 21.76%.

What’s more, there’s a growing gap between the banking industry’s benchmark rate, the so-called prime rate at which banks lend to their best customers, and the rates credit card companies charge — another factor that could keep your credit card APR high regardless of the Fed’s decisions.

The APR margin between credit card interest rates and the prime rate, which banks usually set about three percentage points above the federal funds rate, has skyrocketed since the last time the federal funds rate was cut in 2020. In February of 2024, APR margins hit an all-time high.

So, while credit card interest rates may dip slightly when federal funds rate cuts occur, the difference for cardholders can be minimal.

You can always find your current APR through your online account or on your monthly credit card statement. If your credit card APR isn’t automatically lowered, you can ask your issuer for a lower APR — while there’s no guarantee, you may have a better chance if you’ve improved your credit score or increased your income since you applied for the card.

Just remember: A lower interest rate isn't a reason to make only minimum payments. You may see your required minimum payment decrease because a lower interest rate means fewer interest charges can accrue daily. But paying only that amount can leave you with mounting debt balances each month.

Instead of waiting for additional relief from the Fed, you’ll be much better off taking action to clear your credit card debt now.

Don’t wait to get ahead of your credit card debt. These are some options to consider today:

You may qualify for a balance transfer credit card if you have a solid credit score. These cards carry an introductory 0% APR on your transferred balances. Today, intro periods typically range from 12 to 21 months.

When you transfer your balance to the new card, you should be prepared to pay a balance transfer fee. These fees can set you back around 3% to 5% of your total balance. On a balance of $5,000, that could be as much as $250. Don’t let that dissuade you from a balance transfer though — the fee is still much less than the thousands you could otherwise pay in interest.

Here are a few of the best balance transfer credit cards available today. Some even offer rewards you can continue to earn after you pay down your debt.

If you’re only making minimum payments toward your credit card balances, now is the time to start putting as much as you can toward paying down your debt. Minimum payments can leave you with mounting debt balances for years and no end in sight. Even if you can only pay a few dollars more than the minimum each month, you’ll start to chip away at the debt more quickly.

Say you have a $5,000 balance on a card with a 21% APR. With minimum payments (calculated as 1% of the balance plus accrued interest), it could take you more than 23 years to pay the balance in full. If, instead, you could dedicate $200 toward the debt each month, you could pay it off in a much more manageable 37 months.

Try implementing debt payoff strategies like the snowball or avalanche method, or focus on making multiple monthly payments if it helps you get ahead of your minimum.

It may be the most obvious move, but one of the toughest to implement: If you’re working on paying down debt, try not to spend more on your card and increase your balances.

You might forfeit some rewards value from the points and miles you would otherwise earn, but it can be a good idea to switch to a debit card or cash if you have a tendency to overspend using credit. Those rewards are not worth nearly as much as you’ll spend paying down interest charges and balances you can’t afford.

If you’re really struggling with long-term debt that never seems to go down, you may want to look into credit counseling. A credit counselor can help you develop a realistic budget for your spending, manage existing debts, or even develop a debt management plan. This can be especially useful if you don’t have the great credit score required to take advantage of tools like a 0% APR card.

To get started, you can learn more about credit counseling through the Consumer Financial Protection Bureau, or look into nonprofit credit counseling organizations like the National Foundation for Credit Counseling or the Financial Counseling Association of America.

This article was edited by Rebecca McCracken

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