People who keep a sizeable amount of cash invested in certificates of deposit, money market funds or money market accounts are already facing historically low returns on their fixed income investments. The Fed’s decision to cut short-term interest rates by 25 basis points likely means the downward trend will accelerate.

When the Fed lowers interest rates, institutions need to make up for the money they lose as they lower interest rates on mortgages, car loans and the like. One way to do that is to cut the interest paid on deposits, such as CDs, money market funds and money market accounts.

The national average yield on a one-year CD was 1.11 percent on June 24. On a five-year CD, the yield was 2.52 percent.

On the shorter end, the average yield on a three-month CD was 0.92 percent and 0.99 percent on the six-month.

Money market fund accounts are showing an average annual yield of 0.67 percent, according to ImoneyNet, while money market accounts are yielding 0.62 percent.

We really can’t expect to see the interest on deposit products rise until the Fed starts raising short-term rates. That could be a long way off.

Best moves now:
If you have a laddered CD portfolio, it’s best to keep the ladder going, although you might want to shorten the rungs. You don’t want to get caught with low-yield, long-term CDs when rates start heading up. Consider a ladder that only stretches out one year, with three-, six- and nine-month rungs.

Check
Bankrate’s highest yielding CDs and the
best money market rates across the country.