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Preparing Your Finances for Falling Interest Rates

The Federal Reserve is expected to cut the federal funds rate in mid-September, which could impact many of your financial accounts. However, you can take steps now to lock in higher rates on your savings and plan to minimize future interest on debts. Here are some strategies to consider:

Consider Opening a Certificate of Deposit (CD)

Banks offer certificates of deposit (CDs) with fixed interest rates that are often higher than the federal funds rate. By opening a CD before rates drop, you can lock in a higher rate. Be aware that early withdrawal penalties may apply, and some CDs have minimum deposit requirements. Compare annual percentage yields (APYs) from different banks to find the best option for your short- to medium-term savings.

Look Into Government Treasuries

Similar to CDs, government treasuries—such as treasury bills, bonds, and notes—can offer relatively high APYs. These low-risk investments are loans to the federal government, repaid with interest over periods ranging from four weeks to 30 years. Short-term bills may offer higher APYs than longer-term bonds or notes. Consider setting up a bond ladder by investing in treasuries with different maturity dates for regular access to your investment.

Compare High-Yield Savings Accounts

Banks adjust the APY on their savings accounts based on the federal funds rate. A rate cut could lead to a lower APY, reducing your interest earnings. However, high-yield savings accounts generally offer higher APYs than traditional accounts, especially from online-only financial institutions. Compare APYs to see if switching bank accounts could earn you more interest. You can maintain a checking account for daily finances and move your savings to a high-yield account for better returns.

Other Ways to Prepare Your Finances for Falling Interest Rates

Lower rates can help you save money on debt repayment. Rate cuts could lead to lower interest rates on credit cards and other variable-rate accounts, allowing you to pay down debt faster or save more in a high-yield savings account. Here are additional steps to consider:

• Review Your Debt Payoff Plan: Adjust your strategy based on potential lower interest rates for variable-rate accounts.
• Monitor Mortgage Rates: A rate cut might lower mortgage rates, making it a good time to buy a home or refinance an existing mortgage.
• Prepare to Consolidate Debt: Lower personal loan rates could make debt consolidation more attractive. Calculate how much you’d need to borrow and the rate required for consolidation to be beneficial.

Improve Your Credit to Take Advantage of Lower Rates

A rate cut could lower the interest rate on loans or credit cards, but your creditworthiness also affects the rates you receive. An excellent credit score can help you qualify for the best rates, making debt repayment easier. Check your FICO® Score for free to see where you stand and learn how to improve your credit.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate these financial changes and secure the best rates for your savings and loans.