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Where to Put Your Money When Interest Rates Are Falling

Illustration for article titled Where to Put Your Money When Interest Rates Are Falling

Image: Flamingo Images (Shutterstock)

If you’ve been watching your savings account, you may have noticed falling interest rates over the past year. Rates may be impacted by factors like the economy and rates among competing banks. The biggest influence on rates, though, is the Federal Reserve, aka the Fed.

Our country’s central bank may change the federal funds rate, which impacts the cost of lending for banks. The Fed may change the federal funds rate during one of the eight Federal Open Market Committee (FOMC) meetings every year. Typically, the Fed may decide to lower the federal funds rate to stimulate the economy.

When the federal funds rate goes down, it may be cheaper to borrow money for a mortgage, car loan, or using your credit card. The downside is interest rates for deposit accounts—like checking, savings, money market, or certificates of deposit—may also go down.

Since July 2019, the Fed has dropped the federal funds rate several times—including a dramatic cut to near zero in March. Since then, the rate has stayed low and may continue to do so, depending on the economy. But unfortunately, Federal Reserve officials say the recovery may take a while.

In response to these rate cuts, many banks have followed by slashing rates on high-yield savings accounts. According to a new report from Deposit Accounts, many online banks have lowered rates to around 1%—a far cry from the rates around 2% we saw last summer.

Let’s be clear—high-yield savings accounts are still offering more than the .06% national average. But unless you’re chasing a sign-up bonus offer, it may be worthwhile to explore all your options.

  • High-yield online savings accounts: As rates continue to plummet, there aren’t many competitive high-yield savings accounts to choose from—but some online options do standout. Look for low minimum deposits and no monthly fees.
  • High-yield checking accountsL While checking accounts aren’t usually known for interest rates, there still may be some high-yield options available through credit unions. These accounts may have requirements, though—like swiping your debit card a certain number of times every month.
  • Certificates of deposit: Certificates of deposit (CDs) have also taken a hit; however, there are still 12-month options above 1%. But if you may need access to the money, make sure you are familiar with the company’s penalty for early withdrawals—which may cut into your earnings.

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