November 16, 2020
By Rahul Iyer
The Fed recently announced they would keep rates low (close to 0%) until 2023. They’re doing this to bring back the labor market and economy. While the economy has slightly bounced back and faster than they thought possible, there’s a lot of room for more recovery.
So what do the lower rates mean for you?
If you have money in CDs leave it, but if you’re looking for a place to invest, CDs may not be the best place.
When the Fed cuts rates, banks pay lower APYs. That means you earn less on your investments. You can find better ways to invest your money, even if it’s in a bond or low-cost ETF. Locking your money in a low paying CD will leave you with little more than you started with.
If you still have a mortgage, now is a great time to refinance. With the Fed keeping rates low for the foreseeable future, you don’t have to rush into it, but you may want to consider it.
If you have a lot of consumer debt, you could even wrap it into your mortgage, taking advantage of the low rates that are much lower than rates on most credit cards and other consumer debt.
If you have money sitting in a savings account, it’s probably making little to no interest. Even an online high-yield savings account won’t pay nearly as much as we’re used to. No matter what, keep your money out of your local bank savings account. If you need some type of savings, look for the highest yield savings account online.
Better yet, invest the funds. Take advantage of treasury securities, low-cost ETFs, or even stocks. With stock prices lower, you may be able to jump into the market at a good time, and then ride the wave as it recovers (hopefully).
Now’s also a great time to negotiate lower rates on consumer debt, especially credit cards. While credit card companies tie your rates to the Prime Rate, they often have a margin they add to it. With rates so low though, they may be more willing to offer lower rates to ‘good customers.’
If you pay your bills on time and don’t go over your limit, consider asking for a lower rate. If they say no, look for a 0% APR transfer credit card and move your debt over.
The Fed lowering rates doesn’t affect consumers directly, but you’ll see the effects in little ways throughout your financial life. Take advantage of the lower consumer debt rates while you can. Get what you need, pay it off at low rates, and hopefully when the crisis ends, we’ll see interest rates rise back up so we can make money on savings and fixed-rate investments.