3 ways savers should handle falling interest rates

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Interest rates are heading lower. In an unscheduled decision today, the Federal Reserve cut rates to a target range between 0-0.25 percent.

Earlier this month the Fed cut rates 50 basis points in an emergency move.

These are the first emergency rate cuts since October 2008.

The latest rate cut is likely to affect borrowers with variable-interest rate debt, like credit card debt. And if you’re in the market for a new CD or savings account, an additional reduction in rates would impact you, too.

For anyone hoping to make saving money a top priority, here’s what to consider if interest rates continue falling.

1. Shop around

Earning additional interest could be important if you’re trying to meet a specific savings goal. To earn as much interest as possible as rates fall, it’s best to comparison shop to ensure you’re getting a good deal.

The best savings account rates currently pay around 18 times the national average. There could be a big difference between earning 1.8 percent APY and earning the national average of 0.1 percent APY, particularly if you have a lot of money to save.

CD rates have been falling for months and continue to decline. Online banks still offer better yields than what’s usually available in local branches. Going with a high-yield CD or savings account offered by an online bank is best, as their rates are likely to remain competitive even as interest rates slide further.

In addition to comparing interest rates, savers hoping for some peace of mind can opt for a bank with a rate that’s set for a certain number of months. Banks like Ally Bank, CIT Bank, Citizens Access, Investors eAccess, Marcus by Goldman Sachs and PurePoint Financial, for example, offer no-penalty CDs with yields guaranteed for about one year or less.

2. Consider CD laddering

Laddering CDs or bonds is a strategy that could be worth considering for savers hoping to insulate themselves as interest rates fall.

When you ladder CDs, you’re buying multiple CDs that mature at different intervals (like buying one-, two- and three-year CDs at the same time). As each CD comes due, you’ll have money to use and reinvest. You’ll also be locking yourself into yields that may be higher than the ones offered as banks reduce their CD rates in a falling interest rate environment.

Investing in bonds could be advantageous if interest rates are falling because they’ll be more valuable, says Chuck Mattiucci, senior vice president and financial consultant at the Fort Pitt Capital Group. But unlike CDs, they’re not insured by the Federal Deposit Insurance Corp. or the National Credit Union Share Insurance Fund. If choosing bonds aligns with your existing investment strategy, look for high-quality bonds with a low risk of default.

3. Focus on your savings needs and goals

Even as rates fall, sticking to your original savings and investment strategy is key. Your financial decisions should depend on your personal goals. They shouldn’t change drastically to keep pace with what’s happening in the economy.

Greg McBride, CFA, Bankrate chief financial analyst, says the typical saver shouldn’t be making adjustments as rates fall. Instead, concentrate on what should already be your main focus, like setting aside enough money for a rainy day.

“Whether rates are rising or falling, it doesn’t change your need for emergency savings, or the time horizon for when you need access to cash, or your need to generate income,” McBride says. “So for most savers, there are no steps to take.”

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