The Money Moves to Make Before the Fed Cuts Rates
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What is the main topic discussed in this episode?
Listen at schwab.com slash washingtonwise.
Here's your Money Briefing for Thursday, June 13th. I'm J.R.
How will an anticipated Fed rate cut affect savers and timing to act?
Whelan for The Wall Street Journal. Yesterday, the Federal Reserve said it is still on track to potentially lower interest rates and has penciled in one rate cut before the end of the year. Over the past several years, many people took advantage of steadily climbing rates to grow their savings. For those who didn't, financial advisors say there's still time to make a move.
Open up your checking account. See if you're getting a good rate on it. See if you're getting a good rate on your savings account. If you're not happy with it, if it's sitting at 0.45 percent or below, maybe start searching the Internet or asking your financial advisor for alternative options.
Why are many Americans still keeping cash in low-yield checking and savings accounts?
We'll go over some of those options with personal finance reporter Oyin Adedoyin after the break.
Listen at schwab.com slash washingtonwise.
Interest rates are still high, yet most Americans aren't taking advantage of them to build their savings. Wall Street Journal personal finance reporter Oyen Adedoyan joins me. Oyen, keeping cash in savings accounts might seem like a safe bet and makes it easy to access, but why could that be seen as a misstep?
Most people might not know that traditional banks, big banks, tend to have lower interest rates on savings and checking accounts compared to maybe online banks or newer banks. The average savings account was earning 0.45% in interest a year, and that's higher than most savings and checking accounts, which could earn as low as 0.01% a year.
Why do financial advisors say that now is a good time for people to revisit their strategy regarding cash?
The Federal Reserve has been on this interest rate raising campaign for the last couple years in order to fight inflation. That has made it more expensive to borrow, as I'm sure we've all been feeling. But it's also made it a little bit more lucrative to save. That means that your high yield savings accounts and your certificates of deposit are higher than they've been in decades.
What simple first steps should savers take today to get better interest rates?
What's the first thing that savers can do today to take advantage of high rates?
Advisors say that savers should open up those accounts. Some people treat their checking accounts like a don't look mechanism. Open up your checking account. See if you're getting a good rate on it.
What should consumers watch for when opening a high-yield savings account?
See if you're getting a good rate on your savings account. If you're not happy with it, if it's sitting at 0.45% or below, maybe start searching the internet or asking your financial advisor for alternative options.
You mentioned high interest savings accounts earlier. What rules about opening up that kind of an account should people watch out for?
people should pay attention to the rate that's being offered and any rules or stipulations that may be part of that rate. For example, some bank accounts might offer an attractive rate, but might say, hey, you're going to need at least a minimum of $500 in this account in order to get that yield.
How do money market funds and short-term treasuries work as cash alternatives?
In your reporting, you wrote that the amount of cash and money market funds has risen to record highs. What are those and what are the benefits of those accounts?
A money market fund is a kind of mutual fund that invests in highly liquid and near-term instruments. And people have been really attracted to these because— What is a near-term instrument? Like a short-term instrument, like a treasury bill, for example. Okay. People have been really attracted to the liquidity and the high yields that these types of funds offer. One thing to look out for, though, is that money market funds aren't insured by the FDIC. They may be insured through the SPIC when held in a brokerage account, though. So definitely make sure you know where you are investing in if you have a money market fund.
What could make that type of account less attractive?
The Federal Reserve has indicated that it intends to lower rates at least some point later this year.
How do expected Fed cuts make liquid accounts more sensitive and what are planning alternatives?
So if you've got your money in a more liquid instrument, then it's going to be a little bit more sensitive to those rate cuts.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:01–0:32
2
How will an anticipated Fed rate cut affect savers and timing to act?
0:32–1:10
3
Why are many Americans still keeping cash in low-yield checking and savings accounts?
1:10–3:02
4
What simple first steps should savers take today to get better interest rates?
3:02–3:17
5
What should consumers watch for when opening a high-yield savings account?
3:17–3:53
6
How do money market funds and short-term treasuries work as cash alternatives?
3:53–4:48
7
How do expected Fed cuts make liquid accounts more sensitive and what are planning alternatives?
4:48–6:08
8
How do taxes change the effective yield of treasuries, municipal bonds, and other cash vehicles?
6:08–8:48
Speakers
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