What to Do With Money When Interest Rates Fall

If you’ve watched your savings account, you may have noticed a drop in interest rates over the past year. Factors such as the economy and rates among competing banks can influence rates. However, the biggest influence on rates is the Federal Reserve System, also known as the Fed.

The central bank of the country could change therate onfederal funds , that affect the cost of bank lending. The Fed can change the federal funds rate during one of eight meetings of the Federal Open Market Committee (FOMC) each year. Usually the Fed can decide to cut the federal funds rate to stimulate the economy.

When the federal funds rate drops, it may be cheaper to borrow money on a mortgage, car loan, or credit card. The downside is that interest rates on deposit accounts, such as checking, savings, money or certificates of deposit, can also drop.

The Fed has cut its federal funds rate several times since July 2019, including a sharp drop to near zero in March . Since then, the rate has remained low and may continue to depend on the economy. Sadly, however, Federal Reserve officials say the recovery may take some time. In response to this rate cut, many banks have cut rates on high-yield savings accounts. Many online banks have cut rates to around 1%, a far cry from the around 2% we saw last summer, according to a new Deposit Accounts report .

Let’s be clear – high-yield savings accounts still offer more than the national average of 0.06% . But if you’re not chasing a signup bonus offer , it might be worth exploring all of your options.

  • High Yield Online Savings Accounts: As rates continue to plummet, there aren’t many competitive high yield savings accounts to choose from, but some online options do stand out. Look for low minimum deposits and no monthly fees.
  • High yield checking accounts. Although interest rates on checking accounts are usually not known, some high yield options may be available through credit unions. However, there may be requirements for these accounts – for example, swiping a debit card a certain number of times a month.
  • Deposit certificates : Deposit certificates (CDs) were also affected; however, there are still 12 month options above 1%. But if you may need access to money, make sure you are familiar with the company’s early withdrawal penalties, which can cut your bottom line.

More…

Leave a Reply

Your email address will not be published. Required fields are marked *