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What to do now that interest rates are steady

Here are some tips on what the Fed's decision to stop cutting interest rates means for you.

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By Gerri Willis, CNN

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CDs & Money Market
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6 month CD 0.95%
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Rates provided by Bankrate.com.

NEW YORK (CNNMoney.com) -- The Federal Reserve decided to hold steady on short-term interest rates. We're no longer in a falling-rate environment. Here are some top tips on what you need to do now.

1. Get the real story

It's really the end of an era. The Fed has been cutting rates for about a year. Although rates are steady at 2%, but there is something more in play here.

It's not what the Fed does, but it's what the Fed says that can really move interest rates. A few weeks ago the Fed was talking hard about inflation and the dollar. The market took that to mean the Fed would raise rates sooner rather than later, says Greg McBride of Bankrate.com. That pushed fixed-mortgage rates to the highest level in more than eight months.

Experts say we will see more jawboning throughout the summer. That could push mortgage rates up if investors think that means the Fed will raise rates, or it could bring rates down if investors think the fed will aggressively fight inflation.

2. Don't wait to refinance

Now is the time to get into a fixed-rate product. If you have an adjustable-rate mortgage that dodged the bullet on the rate reset in 2008, you may not be so fortunate in 2009 if rates rise. Consider refinancing to lock in a rate.

While the 30-year fixed-mortgage rate did hit monthly highs, historically, rates are still low. It's lower than what an adjustable-rate mortgage could be if interest rates rise rapidly.

If you have a home equity line of credit that has an adjustable rate, ask to lock in a fixed rate on the outstanding balance.

"What's 5% today, could be 7% tomorrow," says McBride.

3. Pay down debt

On credit cards, there are no real protections for a rising interest rate environment. A fixed-rate card offers no insulation because it's only fixed until the credit card company wants to raise it.

If you have a variable rate card, don't switch it out for a fixed card. You'll be disappointed. Your best defense is to pay down your debt as quickly as you can. That way, more of your dollar goes toward your principal rather than your interest.

4. Don't lock-in long term CDs

If you're a CD investor, you don't want to lock in long maturities. Instead, set yourself up in a six-month CD, so you can benefit when rates are at higher levels later this year.

What makes it attractive isn't the yield, but the ability to reinvest six months down the road when returns may be higher and the Fed will be actively working to corral inflation. If you have a money market account, you've only been getting a 2.2% return on your money on average.

While you won't find higher rates anytime soon, at least lower rates are over. To find competitive CD rates and money market accounts, go to bankrate.comTo top of page

Gerri's Mailbox: Got questions about your money? We want to hear them! Send e-mails to toptips@cnn.com or click here - each week, we'll answer questions on CNN, Headline News and CNNMoney.com.
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