Don't Get Burned by Falling Rates

Saving Money

Don't Get Burned by Falling Rates

The Federal Reserve’s latest rate cuts mean some savers will have to think outside-the-box when it comes to stashing their cash.

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In early August, for the first time since the 2008 financial crisis, the Federal Reserve cut its target federal funds rate, lowering the rate by one-fourth of a percentage point. Kiplinger forecasts that two more quarter-point decreases are likely on the way, in September and in October.

See Also: Kiplinger's Economic Outlook: Interest Rates

Interest rates—even on savings accounts from prominent internet banks, which tend to prop up rates more than brick-and-mortar banks—began dropping a few weeks before the Fed announced the cut. Rates on some long-term certificates of deposit have been falling for months. The trend will likely continue, so savers will have to be creative.

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One idea is to stash both your checking and savings balances in a high-yield checking account. The free Kasasa Cash Checking account from TAB Bank, for example, recently yielded 4% on a balance of up to $50,000 if you meet monthly requirements of having at least one direct deposit or payment transfer and making at least 15 debit-card purchases.

Investing in a CD that imposes no fee if you withdraw funds early is one way to capture some extra yield, says Ken Tumin, of You could, for example, put some savings in a seven-month no-penalty CD from Marcus by Goldman Sachs ($500 minimum deposit). It recently yielded 2.25%, compared with 2.15% for the bank’s savings account. If you decide that the money needs to be more accessible, transfer it to the savings account fee-free.


Slightly better deals for borrowers. If you have debt with a variable interest rate—such as on a credit card or home-equity line of credit and some private student loans—you may see a bit of relief. Based on average household credit card debt of $5,700 and an interest rate of 17.8%, a quarter-point rate reduction lowers the minimum monthly payment by about $1, says Ted Rossman, of If you refinance your mortgage (see Now Is a Good Time to Refinance), consider rolling any HELOC balance that you have into the mortgage.

See Also: 33 Ways to Get Higher Yields