What Lower Interest Rates Could Mean for Your Cash
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Access to affordable credit helps me pay my employees, but I don't really need it. Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See? Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need. While increasing megastore profits. They deserve it, don't they? Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.
Here's your Money Briefing for Tuesday, September 17th. I'm J.R. Whalen for The Wall Street Journal. The Federal Reserve is expected to lower interest rates this week for the first time since 2020. For many people who have capitalized by putting cash into savings accounts or CDs, that means finding a new strategy.
The places where people have been enjoying getting a high return on their cash for the past couple of years are basically about to start paying out less than they have been. And the yields on those are expected to drop. It could be within days or weeks of a rate cut.
We'll talk to Wall Street Journal personal finance reporter Joe Pinsker after the break.
Access to affordable credit helps me pay my employees, but I don't really need it. The inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See? Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need. While increasing megastore profits. They deserve it, don't they? Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.
If the Federal Reserve lowers interest rates this week as expected, how could that affect getting the most out of where you put your cash?
How will the Fed's expected rate cut this week affect savings and cash yields?
Wall Street Journal personal finance reporter Joe Pinsker joins me. Joe, what do most economists expect the Fed to announce regarding interest rates tomorrow?
The expectation is that the Fed will cut rates, and the question really seems to be by how much. 0.25% would be a more typical move, but investors think they might determine that a bigger cut of a half a percentage point would be in order.
If the Fed does lower rates, what are the first changes we're likely to see as a result?
The places where people have been enjoying getting a high return on their cash for the past couple of years are basically about to start paying out less than they have been. In practice, this means that the yields on money market funds will go down. And the same is true for yields on high yield savings accounts, some of which have been paying 5% or even a little bit more. And the yields on those are expected to drop. It could be within days or weeks of a rate cut, though there's going to be some variance from bank to bank. Meanwhile, for certificates of deposit or CDs, rates actually already fell a bit in anticipation of a rate cut and are expected to continue declining after the Fed's announcement if they cut rates as expected.
how much further could they drop?
This isn't going to be an enormous drop-off, like it's falling off a cliff. It's more expected to be slower and more gradual. So if you're thinking about what to do with your cash, it's not like things change immediately overnight, but it still is sort of sooner the better if you're going to think of doing something differently.
What are some common mistakes that people make when they see interest rates begin to move lower?
I was talking with a financial advisor in Milwaukee named Ben Smith, who was saying there are two things that he watches out for in moments like this. And interestingly, these two things are pulling people in opposite directions. The first thing that he warns against is the temptation to chase higher returns by buying stocks in a moment like this. Basically, people get used to earning high returns on their cash. And they want to continue that and extend that and preserve that into the future, even as yields are going down on cash.
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