If you’re considering opening a new savings account or certificate of deposit (CD), knowing how the Fed’s decisions impact your interest earnings over time is key to making an informed decision about where to put your money.

The Federal Open Market Committee (FOMC) held it's latest meeting on June 11 and June 12. During this time, committee members discussed whether to raise, maintain, or lower the federal funds rate. And ultimately, they decided to keep their target rate where it is. The next meeting takes place on July 30 and 31, 2024, when committee members will once again consider whether it's time to change the federal funds rate.

These rate decisions are key indicators of the health of the economy and, ultimately, trickle down to affect deposit accounts. Here’s a closer look at how you can take advantage of today’s CD and savings rates in light of the Fed’s policy decisions.

The federal funds rate, explained

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 5.25–5.50%. Banks negotiate a specific rate between each other within that range.

The Fed uses the 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.

How the federal funds rate impacts your deposit accounts

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 such as high-yield savings accounts and CDs also tend to go up. And when it lowers its rate, deposit interest rates generally fall.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

Should you open a new account before the next Fed meeting?

The Fed will meet again on July 30-31 and decide whether or not to adjust the federal funds rate. (In its last meeting, the committee maintained the target range for the federal funds rate at 5.25–5.50%.) Prior to that, the funds rate increased a fraction of a percent after each meeting.

As inflation slows and the economy improves, many wonder whether the Fed will finally begin lowering its rate next month. Ahead of the latest June meeting, the committee released the following statement:

“In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

In other words, it’s expected that the Fed continue to hold its target rate steady until inflation cools further. That means there likely won’t be any major movements to interest rates for the time being.

That said, we can’t know for sure what will happen in the future. So, while you wait for the Fed’s July announcement about how rates will change (or not), it could be a good time to evaluate your current savings account or consider opening a new account.

Should the Fed decide to keep rates the same, it won’t have a direct impact on your savings and 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 savings and CD accounts are paying around 4% to 5% APY and up.

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

Read more: Can non-U.S. citizens open a bank account?

Ultimately, waiting until the Fed’s next announcement before opening a new deposit account won’t have a significant impact on your potential earnings. Now is as good of a time as any to compare the current rates on your existing accounts and see if you could be earning more elsewhere.

For example, say your existing savings account earns 0.45%, the national average for traditional savings accounts. If you deposited $10,000, you’d earn a total of $45 in interest.

However, some of the top high-yield savings accounts offer around 5%. If you deposited $10,000 at that rate, you’d earn $500 in interest over one year. That means you could be missing out on significant earning potential by leaving your money in a low-interest account.

Regardless of how the Fed adjusts the federal funds rate, it pays to reevaluate your current accounts and ensure you’re earning the best rate possible.

Read more: How to choose the right high-yield savings account for you