When the Federal Reserve starts cutting its target federal funds rate, the economic ripple effects can impact everything from your savings to your borrowing power.
With rates already trending downward and expected to decline further in 2025, savers may face lower returns for savings accounts and CDs. However, borrowers could find themselves with opportunities to secure lower interest costs.
Understanding how to navigate this shifting landscape can help you make money moves that position you for financial success.Here are six strategies to maximize your financial opportunities before rates fall further.
Steal this billionaire wealth-building technique
The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.
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If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)
Find a CD with a great rate
As interest rates fall, the returns on certificates of deposit (CDs) can be expected to decrease too. If you’re considering locking in a high-yield CD, now might be the time to act.
Look for CDs offering competitive rates with terms that match your financial goals. By locking in a higher rate today, you can secure a better return on your savings, even as rates decline in coming months.
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Prepare to refinance or take out a mortgage on a new home
Declining interest rates are likely to be good news for prospective homebuyers and those with existing mortgages.
If you’re planning to buy a home or refinance your current loan, prepare now for the possibility of lower mortgage rates in the near future. Review your credit score, gather documentation, and shop around for lenders offering competitive rates.
Pay off your debts
While falling rates can reduce the cost of high-interest debt, it’s still a good idea to chip away at your balances. Focus on paying down credit cards, personal loans, or other high-rate debts so you can minimize interest payments over time.
Not only does paying down debt boost your financial health, but it also frees up more money for future investments or savings goals.
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Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.
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Let’s say you want to invest $250, as an example.
With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.1 <p>This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. </p> <p>To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>.</p> <p>Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement.</p> Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.</p>
Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.25% (as of 11/15/24) APY2 <p>Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings.</p> on your uninvested cash3 <p>Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks.</p> <p>All investments involve risk and loss of principal is possible.</p> <p>Robinhood Financial LLC (member SIPC), is a registered broker dealer.</p> and the ability to buy and sell stocks 24 hours a day, 5 days a week.
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Lock into long-term bonds
Falling interest rates typically lead to lower returns on bonds. Locking into long-term bonds now can help you secure higher yields before rates dip further.
Bonds can serve as a key part of your wealth-building strategy, especially during periods of rate volatility. You might want to consider government or corporate bonds with solid credit ratings that can add stability and consistent income to your portfolio.
Consider delaying purchases that require a loan
If you’re planning a large purchase that requires financing — such as buying a car or major appliance — you might want to hold off.
As interest rates continue to drop, you could benefit from lower borrowing costs in the near future. While it’s not always possible to perfectly time the market, waiting for even a slight rate decrease can make a significant difference over the life of a loan.
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Continue to save for a rainy day
Falling rates make borrowing cheaper. That might tempt you to run up debt. However, doing so is likely a mistake.
Instead, work on building a strong emergency fund. Unexpected expenses or economic downturns like a recession are inevitable over time, so building a robust safety net is essential.
Aim to save at least three to six months’ worth of living expenses in a high-yield savings account, even if rates are declining. Having cash on hand helps you to prepare yourself financially for life’s uncertainties.
Bottom line
The Federal Reserve’s decision to lower the federal funds rate presents both challenges and opportunities.
Whether it’s locking in higher savings rates now or preparing to refinance your mortgage, being proactive is key if you want to get ahead financially during this period of falling rates.
By staying informed and planning ahead, you can take steps to secure your financial future.
Masterworks Benefits
- Invest in art like a millionaire for a relatively low cost
- Art investments have outperformed the S&P 500 by over 131% for 26 years
- Purchase shares of artwork by top artists
- Hedge against inflation and diversify your portfolio
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FinanceBuzz doesn’t invest its money with this provider, but they are our referral partner. We get paid by them only if you click to them from our website and take a qualifying action (for example, opening an account.)
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