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The Federal Reserve kicked off 2024 by saying it would likely cut interest rates at some point during the year. On Sept. 18, the central bank finally made good on that guidance by cutting interest rates by half a percentage point.
Interest rate cuts are a mixed bag for consumers. On the plus side, borrowing should get cheaper. But since I don't have a long-standing credit card balance and my only current loan, a mortgage, has a fixed rate, that won't have an impact on me.
On the flipside, interest rate cuts will mean lower savings account and certificate of deposit (CD) rates . And that's something that will affect me. In light of the Fed's actions, I'm gearing up to make some financial changes. And you may want to do the same.
It's time to think twice about CDs
As a financial writer, I'm well aware that the Fed's September interest rate cut is likely to be the first of many. The Fed hiked interest rates in 2022 and 2023 in response to soaring inflation. Now that inflation has cooled, the Fed needs to reverse those rate hikes, which means we can expect a series of cuts in the coming year.
The Fed's rate cuts won't impact the CDs I already have. The nice thing about CD rates is that they're guaranteed, so I don't have to worry about earning less on that money in the coming months.
But I do have several CDs that are maturing late in 2024 or in 2025. I need to keep track of them carefully given where interest rates are most likely going.
This year, when the CDs I opened in 2023 matured, I renewed them because rates were still high. I'm not sure I'll want to renew my current batch of CDs, so I'm setting calendar reminders for when they come due so I can decide what to do with that money. If I sit back and do nothing, my bank will roll those CDs into the same term at maturity. I may not want that unless rates surprise me.
What will I do with my CDs instead of renewing them? That depends. I opened some of those CDs to save for my oldest child's college fund. I'll need to decide if I'm comfortable investing that money given the limited time frame I'm working with. Initially, I may decide to keep that money -- or at least some of it -- parked in a savings account while I figure things out.
Keep tabs on your finances in the coming months
The Fed's rate cuts could affect your finances in more ways than one. You need to keep track of those rate cuts and see how they might influence your decisions.
I have no plans to refinance my mortgage because I locked in a low rate when I refinanced in 2020. But if you signed your mortgage last year or earlier this year when rates were elevated, then it pays to keep up with what the Fed does. Future rate cuts could lead to lower mortgage rates , making a refinance feasible for you.
And if you have CDs maturing in the coming months, do what I'm doing and pay attention to those dates so you can decide what's best for your money. It's also a good time to see if you have extra money in savings you want to move into a CD before rates fall even further.
In fact, that's one additional thing I'm contemplating doing before the end of the year. I'm not convinced I'll open another CD because I have a fair amount of money tied up in CDs already. But it's something I plan to put thought into before CDs become less attractive.
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