How to Protect Your Savings From Falling Interest Rates
The Federal Reserve cut the federal interest rate on July 31 and, as predicted, banks are also starting to cut their interest rates.
These lowered interest rates affect both savings accounts and CDs, as MarketWatch reports:
Analysis of FDI data by behavioral economics consulting firm Analyticom found that certificates of deposit (CD) rates are falling worldwide for the first time in five years.
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In recent weeks, several online banks, which have long offered competitive rates on their savings account products, have begun to reduce this yield.
If you want to get the most out of your accumulated income, you have several options:
Transfer your savings to a bank with a higher interest rate
Don’t like the interest rate your bank gives you? Start looking for another bank. Online-only banks often provide slightly higher interest rates than regular banks, but it is important to compare all the numbers: interest rates, minimum balance requirements, monthly transfer requirements, fees, etc.
Once you find a bank you like, use our bank switching guide to make sure you transfer your funds without any common mistakes, such as falling below the minimum balance in your old account before the transfer is complete and unexpected charges. payment.
Build a ladder of CDs before the rates drop even further
Earlier this year, we looked at whether to invest in CDs before interest rates peak . As Lifehacker’s Lisa Rowan explained, missing the top of the peak isn’t all that important:
Take a look at the last two times that the federal funds rate has sagged significantly (2000-1 and 2007-8) and you will see that the decline has been gradual rather than in one fell swoop. Yes, some slides are more visible than others (see December 2007 to May 2008). But unless there is an economic meteorite, we are not going to drop from 3% to 0.25% on CD in one month.
However, we are now in that gradual rate cut that she is talking about. So if you’ve been thinking about getting into the CD ladder and taking advantage of their fixed interest rates, there is still time. Once you put your money into the CD, you won’t be able to pick it up until the CD expires without paying a fine, so keep that in mind before building your staircase.
Invest more money in the market
Yes, the stock market is “on the move” right now, and yes, we may be heading into a bear market (which is bad). However, if you are playing a long game and are willing to buy and hold, there is nothing wrong with entering the market while the market is in a temporary downturn. Buy low, sell high, right?
If you have cash on top of your emergency fund, it’s worth asking yourself if you should invest that money in the market. It’s the same with the money in your checking account, by the way; if you have more there than you need it would be a good idea to put that money where it can generate higher returns .
Just remember that investment is not guaranteed – and if we do end up in another recession, you may not see higher market returns for a while – so don’t invest money that you cannot afford to lose.