With Interest Rate Cuts, Here are Money Moves to Consider

The Federal Reserves is signaling that it is about to start with its interest rate cut cycle.  Last time, we talked about why a lower interest rate environment should be good for financial markets.  Historically the stock market and other growth investments perform well during periods of declining interest rates.  Conversely your general savings may be negatively impacted when interest rates start to go down.  Your general savings include your emergency savings and your protected investments.  With that being said, now your money moves should be to lock in the current higher interest rates before they start to fall.   Before discussing your money moves in detail, let understand why interest rates are predicted to start falling.

Deciding to lower interest rates by the Federal Reserves is all about the U.S. economy.  The Federal Reserves focuses on inflation and unemployment.  With inflation steadily decreasing from its peak of 9.1% in June 2022 to the latest reading of 3.0% in June of 2024, this shows a significant decline and that inflation is heading in the right direction.  You may not feel it in everything that you buy, but collectively the cost of things like housing, transportation, and retail goods are steadily on the decline.  As far as unemployment, it is holding steady at 4.1%.  Although, this has ticked up slightly from the 3.9% unemployment readings from earlier this year.  Since unemployment has risen a little and inflation is trending in the right direction, the Federal Reserves is expected to lower interest rates to keep the U.S. economy growing in a positive direction.  It looks as if the Federal Reserves will do just that.  The latest estimates are that the Federal Reserves will start to cut interest rates in September 2024.  This might signal the start of a declining interest rate environment.

 Now, let’s talk about money moves you should consider.  Before interest rates start to fall, now is the time to lock in the higher interest rates available on many of your savings products like Emergency Savings, CD’s, U.S. Treasury, and Bond Funds.  For your emergency savings, you should consider having your money in an online savings institution or a credit union that pays a higher interest rate on your savings.  Both online savings and many credit unions pay higher interest than the traditional banks in your neighborhoods and your money is still covered by the $250,000 FDIC insurance per deposit at these institutions.  If you have not done so already, please take advantage of the higher interest rate savings that you might be missing out on.

For your Protected Investments like CD’s, U.S. Treasury, and Bond Funds, now is the time to lock in the current higher interest rates before these rates start to fall.  For example, I just changed from a 6-month CD paying 5% interest to a 30-month CD paying an APY (Annual Percentage Yield) of 4.75%. Even if interest rates start to decline, I will continue to receive my 4.75% APY for the next 2.5 years.  The downside is that you do not have ready access to this money, however your Emergency Savings should be available to you for your short-term unexpected needs for money.  Currently there are CD products for up to 60 months (5 years) paying the 4.75 APY.  If you do not need immediate access to the cash for 5 years, then this might be an option for you.  The U.S. Treasurys have a similar advantage by locking in the current higher interest rates for a longer duration or longer period of time.  The Bond Funds should also perform well because when interest rates are lower, then the overall price value of the Bond Funds will go up.  This means you are also getting investment appreciation in addition to your interest rate return with your Bond Fund in a declining interest rate environment.  This is an added benefit.

The bottom line for you, with your savings products, you should consider money moves to lock in the current higher interest rates before interest rates start to fall.  If you need any help with how to maneuver when interest rates start to decline, please reach out to Paycheck to Wealth to get help with getting your financial situation in order.  Visit www.paychecktowealth.com to learn more.