As the Federal Reserve has shifted its stance from raising interest rates to cutting them, many investors and savers are wondering where to put their cash to get the most out of it. As we just witnessed the first 50-basis point interest rate cut and the Fed is anticipating more rate cuts between now and year end, variable rates such as high yield savings and CDs are set to subsequently fall. So, given this outlook it’s essential to strategize and optimize where you store your money to make it work harder for you. Let’s explore some options to consider in this new economic environment.
As we’ve been discussing for over two years now, FDIC-insured high-yield savings accounts offer significantly better interest rates than traditional money center bank savings accounts, and have been a great place to park cash. Though their rates will ultimately drop in line with Fed cuts, they typically still offer better returns than standard savings. These accounts are still ideal for emergency funds or cash you need to access easily.
Certificates of deposits, CDs, as well as U.S. Treasury securities, including Treasury bills (T-bills), notes, and bonds, are government-backed investments have also been attractive higher rate vehicles, offering a fixed interest rate for a set period, making them a good option for individuals locking up cash. Despite falling rates, locking in a good CD or Treasury rate while they’re still around is a good idea and can help you maintain a higher return, especially if you open it before rates fall further.
Given the higher interest rate environment we’ve been living in for over two years, some individuals took a different approach to paying down low interest rate debt when they were earning higher interest on their cash. As interest rates fall, it may be important to re-analyze your debt, to make sure your debt repayment strategy still makes sense for you. For example, in some cases, excess cash to pay down high-interest debt may be a prudent financial move in a falling interest rate environment.
In a falling interest rate environment, optimizing where to place your cash can help preserve its value and even generate some return. Ultimately, when making cash allocation decisions, it’s prudent to align with your specific and personal financial goals, risk tolerance, and liquidity needs. Diversifying your approach by spreading cash across several of these options may help you weather the current rate cuts while keeping your financial future on track. If you have any questions on the best areas to allocate your cash amid a falling interest rate environment, email info@shermanwealth.com or schedule a complimentary intro call here.
