Sept. 17 and 18, y’all. The Federal Open Market Committee, the Federal Reserve System’s monetary policy-making arm, will meet again to discuss whether to lower interest rates or not. Speculation is high! Here’s what Investopedia.com thinks:
“Some experts expect the Fed to hold rates steady at a target of 5.25%-5.50%, as the Fed still waits for inflation to ease a bit more to its 2% target. There is speculation among traders on the likelihood of a cut of between 25 and 50 basis points in September.”
We all like thinking that interest rates will go down so we can get a freaking break on our consumer debt, loans and mortgages. Particularly in the Roaring Fork Valley, folks are just waiting in the sidelines for rates to go down so they can get in line for the house wars.
Keep the following in mind, though. If you have accounts that are growing for you that are subject to the federal interest rate, like a High Yield Savings Account (HYSA) or Money Market Account (MMA), the interest rate on that money might go down as well if we see a national decrease. Keep an eye on your accounts. I recommend checking them one time per month (the truth is, to develop a healthier relationship with your money, you need to look at it at least once per week) to see if the interest rate is changing. You can also call your account holder to see if they know of any plans to start decreasing rates.
If you start to see a dip and you’re not pleased, you can consider putting your money into different accounts with sure-thing rates. At the time of this writing, there is a Certificate of Deposit (CD) available with America First Credit Union (I am in no way affiliated) with a fixed rate of 5.25% for a three-month term. (5.25% is currently on the high end for HYSAs and MMAs.) This means, unlike HYSAs or MMAs, your money is locked up for three months while it grows. Read — you cannot access it. At the end of the term (the maturation date for the CD), you get your money back with your added earnings of 5.25%. This particular account only requires $500 to open it.
Beware; if you like this idea and you’re thinking of transferring your money, use caution if this money is your emergency savings account, aka, what Money Juice calls “Future Sexy You” (because we’re all much sexier when we have our own backs and know we’re taken care of in case of an emergency). If you need to access the money before the term is up, you’ll face an early withdrawal penalty, potentially making the whole exercise moot.
I like CDs as ways to start teaching your kids about money. If your kiddo receives a financial gift, you can put it in a CD and they can do the math to know how much they’ll have at the end of the term. Then they can save for something specific they want, invest it again, or donate part of it to something they care about.
Regarding interest rate drops for accounts that are growing for someone else at your expense, i.e. credit cards — call your credit card company to negotiate a lower rate once the rates start dropping. You can find a script online if you’re nervous about this. Tell them you’ve been a great customer for X number of years and you’d like to negotiate to help you stay a dedicated customer.
With mortgage rates, this might be tricky, especially where we live. Some are predicting mobs of home-buyers coming out of the woodwork once rates start going down, just landing us all back in the hellscape of outbidding one another and ultimately paying gargantuan amounts for homes we can’t even afford at market price. Things to consider:
1) Start shopping now, while rates haven’t dropped. Remember, if you have enough money up front, you can buy down your mortgage interest through mortgage points. This will lower your interest rate (by up to one whole point with enough cash), giving you a leg up before rates start to drop. 2) Buy now and refinance when rates drop. You’ll need to do the math on this because there is a fee for refinancing so make sure the fee will cost you less than just waiting for the lower future rate. 3) Wait for them to drop but get in early with a realtor you really love. If someone knows you and loves you, they will help you fight for your dream home. 4) Wait and hedge. Keep saving, saving, saving, get super clear on what you want, know all the costs up front, start growing your home-maintenance account, picture your new home each day, write the owner love letters, write the home love letters, pray and make the Universe aware that this is your spot, gosh darn it, yes it is.
Be well, money stewards, and use the systems to your advantage!
Megan Janssen is a financial educator and founder of Money Juice. Learn more at www.money-juice.com