The Federal Reserve may start cutting interest rates as early as September. Federal Reserve Chairman Jerome Powell publicly stated on Friday, August 23rd, that the time for rate cuts has arrived.
For Americans burdened by high interest rates, the rate cut in September could bring some relief. Financial experts suggest that with proper planning, this relief could be even more pronounced. Here are some recommendations provided by CNBC from financial experts.
With the Federal Reserve lowering rates, interest rates on online savings accounts, money market accounts, and certificates of deposit (CDs) will decrease accordingly. Experts advise locking in rate returns now (before the Fed cuts rates).
Currently, the highest-yielding online savings accounts offer rates exceeding 5%—much higher than the inflation rate.
According to a June survey by Santander Bank, the typical saver holds around $8,000 in a checking or savings account, and by transferring this money to a high-yield account with a rate of 2.5% or higher, they can earn an additional $200 in interest annually. The survey found that most Americans keep their savings in traditional accounts with an average interest rate of only 0.45%.
Greg McBride, Chief Financial Analyst at Bankrate.com, stated, “Now is a good time to lock in the most competitive CD rates, which are well above the target inflation level.”
According to Bankrate’s data, the highest-yielding one-year CD currently offers a rate of over 5.3%, comparable to high-yield savings accounts.
Business Insider suggests researching and comparing information from banks and credit unions that offer CDs, some of which provide good benefits without requiring high initial deposits.
It’s important to ensure these CDs are federally insured. Remember, funds in financial institutions covered by the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) are safe, with each depositor and each account category in a bank account receiving up to $250,000 in coverage.
As interest rates decrease, base rates also drop, potentially leading to lower rates on variable debt (especially credit cards) and reducing monthly repayment amounts.
For example, according to LendingTree data, the average credit card interest rate currently stands at nearly 25%. If you have a $5,000 balance and make monthly payments of $250, you would pay over $1,500 in interest and take 27 months to repay.
A 0.25 percentage point rate cut by the Federal Reserve could save you $21 per month, enabling you to pay off the balance one month earlier.
Leslie Tayne, a debt relief attorney with New York’s Tayne Law and author of “Life and Debt,” suggests borrowers no longer need to wait months to gauge Federal Reserve policy trends and can now switch to zero-interest balance transfer credit cards or consolidate and repay high-interest credit cards with personal loans.
If you plan to make significant purchases, such as buying a home or a car, waiting for interest rates to drop is worthwhile as lower rates can reduce future financing costs.
“Buying during periods of lower rates can save you money throughout the loan term,” says Tayne.
While mortgage rates are fixed and linked to treasury yields and the economy, rates for home and auto loans have begun to decrease from recent highs due to expectations of economic slowdown by the Federal Reserve. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage is currently around 6.5%.
Jacob Channel, Senior Economic Analyst at LendingTree, calculates that compared to the recent peak of 7.22% in May, a lower rate on a $350,000 loan will save $171 per month, $2,052 annually, and a total of $61,560 over the loan term.
(Note: This article is for general informational purposes only and is not intended as advice. The Epoch Times does not provide investment, tax, legal, financial planning, real estate planning, or other personal finance advice. For specific investment matters, consult your financial advisor. The Epoch Times assumes no investment responsibility.)