Interest rates have been steadily rising for several years, but that recently changed.
At its highly anticipated meeting on July 30-31, the Federal Reserve lowered short-term interest rates by 25 basis points, reversing a trend we’ve seen since late 2015. (A basis point is one-hundredth of a percentage point.) Now, there’s a good chance that the Fed will reduce rates again at their upcoming meeting Sept. 17-18.
Another rate cut is likely to affect borrowers with variable-interest rate debt, like credit card debt. And if you’re in the market for a new CD or savings account, an additional reduction in rates would impact you, too.
For anyone hoping to make saving money a top priority, here’s what to consider if interest rates continue falling.
1. Don’t panic
The Fed has hiked interest rates nine times since December 2015. Though the rate environment has shifted considerably in recent months — even beyond what analysts and economists expected — there’s no need to freak out. A couple of interest rate decreases won’t have much of an impact on your ability to save.
Some banks (like Ally and Marcus by Goldman Sachs) lowered their savings account rates before the Fed officially cut rates in September. Others have continued raising yields for savers and increasing the amount of interest customers can earn. All in all, if rates fall it may be possible to end up with a yield that still beats the inflation rate.
2. Shop around
Earning additional interest could be important if you’re trying to meet a specific savings goal. To earn as much interest as possible as rates fall, it’s best to comparison shop to ensure you’re getting a good deal.
The best savings account rates pay more than 20 times what’s offered by traditional, brick-and-mortar banks. There could be a big difference between earning 2.5 percent APY and earning less than 1 percent, particularly if you have a lot of money to sock away.
CD rates have been falling for months and continue to decline. Online banks still offer better yields than what’s available in local branches. Going with a high-yield CD or savings account offered by an online bank is best, as their rates will remain competitive even as interest rates slide further.
In addition to comparing interest rates, savers hoping for some peace of mind can opt for a bank with a rate that’s set for a certain number of months. Banks like PurePoint Financial and Marcus by Goldman Sachs, for example, offer no-penalty CDs with yields guaranteed for about one year.