Interest rates are likely to go down soon by the Federal Reserve. This could be good news for people who want to borrow money, save money, or spend money.
Last week, Fed Chair Jerome Powell said that “the time has come” for rate cuts. This made investors and experts think that the first cut could happen as soon as next month, when the Fed meets again, and that there will be more cuts over the next twelve months.
The federal funds rate is between 5.25% and 5.5% right now. Starting in March 2022, the Federal Reserve raised interest rates 11 times to try to stop inflation from going through the roof. However, these increases have made things harder for people who are already having a hard time with prices going up because it costs more to borrow money and the interest rates on mortgages, credit cards, and car loans have all gone up. For savers, though, those same high rates have been good news. They can use high-yield savings accounts and CDs that promise rates of return above 5%.
Rate cuts will probably make things easier for some families because it will cost less to borrow money. However, people who have money in high-interest accounts might not make as much as they do now. Mark Hamrick, a senior economic expert at Bankrate, said, “It’s all about optimising.”
How can you make the best use of your money? To get the most out of your money, follow these three rules and do one simple thing.
Quick: Put the money you’ll spend next year into a CD.
With a certificate of deposit, or CD, you can lock up your money for a certain amount of time and earn interest at a fixed rate. When rates are lowered, rates on high-yield savings accounts go down right away. However, a CD can give you more time to earn interest on your money at the higher rates that are currently in place.
Longer-term CDs that lock up money for up to five years usually have higher rates of return than shorter-term CDs that lock up money for 30 days to a year. Longer-term CDs have rates of around 5% or a little higher right now, while short-term CDs have rates that are the same as or higher than those for longer terms. This is because a lot of banks are afraid to say what will happen with the economy in the long run.
Jaime Eckels, a wealth-management partner and financial planner at Plante Moran Financial Advisors, said that people who want to save money for a big buy in the next year or so should put their money in a CD with a term that matches their goal’s time frame.
She also said that this method only works well if the person is sure of how and when they are going to spend the money. It’s possible that the money won’t make as much in a CD over time as it would in the stock market: The S&P 500’s
Dow Jones Market Data says that the annualised rate of return for the SPX of 0.54% over the last 10 years was 12.03%. In the short term, though, the market can be hard to predict.
Eckels said, “If you need money for a house and have a $100,000 down payment, you wouldn’t put it on the market and hope for the best.”
People should look around to get the best rates on CDs and high-yield savings accounts, but Hamrick said that saving anything is better than not saving at all. An interesting new Bankrate poll found that Americans were more likely to say they regretted not saving enough for retirement or emergencies than taking on too much credit card or student loan debt.
When you’re trying to save money, put cash first.
Experts in money say that a high-yield savings account is a good way to keep your money safe if you don’t have a clear buying goal right now. When you take money out of a CD before the end of the term, on the other hand, you usually have to pay fees, and the fees are higher for longer-term CDs.
Hamrick said that when planning for situations, it’s important to put cash on hand first so that you don’t have to use more expensive forms of debt like credit cards or personal loans. He said, “That makes some dominoes fall.”
If you have credit card debt, you should try to get a cheaper interest rate and think about transferring the balance.
Financial experts say that credit card interest rates won’t go down much, even after the Fed starts cutting rates.
According to LendingTree, the average credit card rate in the U.S. right now is 24.92%, and the highest APR for a typical new card deal is 28.34%.
Bobbi Rebell, CEO and chief financial planner of Financial Wellness Strategies, a company that helps employees with their money matters, said that people who have credit card debt should keep paying it off as planned and also do things like call the credit card company to try to get a lower interest rate.
Eckels said that moving the credit card debt to a card with an introductory 0% rate would be another option.
If you want to buy something big, don’t try to time the market.
Avoid putting a big-ticket item on a credit card right now if you want to buy something like a computer or a kitchen tool. But financial planners say that waiting won’t help you much if you want to buy a house.
The cost of getting a house is affected by more than just interest rates. Home prices are also affected by how many people want to buy them. Mortgage rates usually change at the same rate as the federal funds rate, but they have gone down over the last month.
“It’s impossible to time the market for homes.” He said, “No one knows how to do it.” “When rates go down, there may be more demand and buyers,” she said. This could cause home prices to go up.
She also said that people do forget that they can refinance their mortgages sometimes. Whether they have a fixed-rate or an adjustable-rate mortgage, they might not always have the same rate.
In the end, Rebell said, don’t let the thought of rate cuts affect the choices you make about your money.
“You should always know what’s going on in the macroeconomy,” she said. “But don’t get so caught up in it that you can’t make this life choice that makes sense to you at that moment.”
