Informa Research Services Says “Don’t Panic!”: What a Fed Rate Cut Could Mean for You

Rest assured, the world is not coming to an end because of a possible Federal Reserve discount rate cut.  On Tuesday, the Federal Open Market Committee will meet to discuss whether or not to lower the discount rate.  But despite the seemingly ambient anticipatory anxiety currently erupting from most business and economic media outlets, the sky is not falling.  Rather, this possible decrease is just a small acorn falling off a tree.  So take a deep breath, sit back, and relax.  Here are some pointers to help you make the most out of next week’s decision.

If you feel that deposit rates may drop after the Fed’s decision, these are just a few of the options to consider in deciding where to place your money:

• Consider locking your money into a CD now to take advantage of the rates that are currently available.  If you are considering a term longer than three years, check onrline for the most competitive offers.

• Money market accounts and high-yield savings accounts are also potential deposit accounts you can use to make the most of a possible rate cut.  The rates offered can be extremely competitive with many CD accounts.  You can also find some of these products offering teaser rates that could be locked in for three to six months.

• Another option to consider is laddering your CDs.  By laddering your CDs, or locking your money into CDs of various terms, you will be given the flexibility to take advantage of the rates and promotions available when your CDs mature.  Furthermore, you can lock your money into a longer term CD that typically offers higher rates, and over time, this should even out the high and low interest rate cycles.

By staying informed of all your options as rates change, you can properly gauge what is best for your situation.  For all these options, you should always keep an eye out for the best rates.  Many financial institutions will continue to offer promotional and teaser rates even if rates fall.  Be sure to use tools on the Internet to stay up to speed with the most current rates being offered.  Even if the Fed decides to cut the discount rate, it is very likely that there will still be great rates out there, both online and at your local bank.  Be sure to take advantage of the promotional products (typically paired up with very good rates) banks will continue to offer to attract new customers.

As for loans, the loans that should be affected by the prime rate cut are the variable rates associated with credit cards and home equity lines of credit. Because the rates tied to these loans are typically calculated by adding a certain percentage to the prime rate, with the Fed cut, these interest rates could drop slightly.  Additionally, this might be a good time to open up that home equity line to help pay for unexpected expenses, such as home repairs or improvements.

In general, if the Fed decides to make any drastic changes, the effects would probably be seen over the span of a few months or years, not a few days, allowing the market time to adjust.  Remembering to keep things in perspective and not be impulsive with any financial decisions will ensure that you and your finances will be relatively safe and secure.

Source: Informa Research Services