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What to do with your savings after a Fed rate cut

Three suggestions for storing your money amid falling interest rates.

Updated

The coronavirus is disrupting daily lives across the globe. In an effort to support our economy, the Federal Reserve slashed interest rates by half a percentage point on March 3, 2020. On March 15, 2020, it announced another emergency rate cut that would slash interest rates to nearly zero. Amid this pandemic, it’s important to not let fear drive your financial decisions.

Fed rate cuts help reduce the likelihood of a recession by stimulating the economy. When rates are low, consumers are more likely to finance homes, cars, personal loans, businesses and more. The downside is that these low rates carry over to savings accounts and CDs where your money can’t work as hard for you. Here’s a list of what you could do with your money.

Look at high-yield savings accounts

Brick-and-mortar banks are notorious for offering low interest rates that hover around 0.1%. On the other hand, online-only banks typically offer the highest available rates — even when rate cuts cause APYs to slide.

If you’re thinking about switching savings accounts, consider one at an online bank. You’ll have a better chance of earning a higher APY than you would with a traditional savings account. Plus, you’ll likely pay fewer fees.

But keep in mind that high-yield savings accounts are the most susceptible to Fed rate cuts. Rates aren’t guaranteed as they are with CDs, so the interest rate you get today could be different than the rate you get tomorrow. Either way, you’ll earn more money than you would with a traditional savings account.

Compare savings accounts and rates

If you plan on moving your money to a high-yield savings account, here are some top rates to compare.

$
$
months
Name Product Interest rates (APY) Fee Minimum deposit to open Interest earned
American Express® High Yield Savings
0.60%
$0
$0
Enjoy no monthly fees and a competitive APY with this online-only savings account. Accounts offered by American Express National Bank, Member FDIC.
Axos Bank High Yield Savings
0.61%
$0
$250
No monthly maintenance fees. No minimum balance requirements. Interest compounded daily.
Aspiration Spend & Save Account

1.00% on $0 to $10,000 but you’ll need to be enrolled in Aspiration Plus and make at least $1,000 in debit card purchases a month
$0 per month or $7 per month for Aspiration Plus ($5.75 per month if you pay annually)
$10
Deposits are fossil fuel-free and insured by the FDIC. Enjoy a spend and save combo account with unlimited cash back rewards and a $100 bonus when you spend $1,000 in your first 60 days.
CIT Bank Money Market
0.60%
$0
$100
A savings account with a higher-than-average rate and minimal fees.
SoFi Money
0.25%
$0
$0
SoFi Money® is a cash management account that charges no account fees to save, spend, and earn cash back rewards when you spend on brands you love.
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Compare up to 4 providers

Consider fixed-rate CDs

If your money is currently locked away in a fixed-rate CD, there’s no need to worry if the Fed cuts rates. That’s because CD rates are locked in at the beginning of your term, so you’re guaranteed to receive that same rate until maturity.

If you don’t have a CD — and you want to lock in a high interest rate before the Fed makes additional cuts — you could consider opening one. Keep in mind that you can access CDs like a savings accounts. If you need to withdraw your money before your CD term ends, you’ll pay a hefty penalty.

If rates are predicted to decrease in the future, it’s best to choose a fixed-rate CD over a variable one. Variable CDs have added flexibility, but rates are often lower than fixed-rate CDs and they can decline if the Fed cuts rates.

Compare where to lock in a strong CD rate

Looking to move some of your money into a fixed-rate CD? These options have strong rates worth considering.

Name Product 1-year APY 18-month APY 2-year APY 3-year APY 5-year APY
CIT Bank Term CDs
0.35%
0.35%
0.4%
0.4%
0.5%
Radius Bank CDs
0.5%
0.5%
0.5%
0.5%
0.5%
BBVA CD
0.15%
0.15%
0.2%
Discover CDs
0.6%
0.6%
0.65%
0.7%
0.8%
Discover IRA CDs
0.6%
0.6%
0.65%
0.7%
0.8%
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Keep some funds liquid

You may be tempted to move all your money into a CD when rates drop, but you’ll want to keep some funds in a liquid savings account too. Although savings account rates can fluctuate during a Fed rate change, you’ll maintain easy access to your money.

Don’t think of these suggestions as either/or solutions. If you have a strong enough emergency fund, you can move excess cash into a fixed-rate CD to guarantee you keep earning a high rate when rates decrease.

Bottom line

The coronavirus outbreak may have you a little anxious about your savings, and that’s okay. But don’t let fear dictate your financial decisions. Regardless of how the global economy is doing, the key is to stick to your financial savings goals and keep your funds accessible in a savings account. As always, compare your savings options to figure out which account is best for you.

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