HOW LOWER INTEREST RATES AFFECT YOUR FINANCES

The Federal Reserve’s rate cut will provide relief for some borrowers, but savers will have to work harder to get decent returns. By SANDRA BLOCK

WHEN the Federal Reserve reduced its benchmark short-term interest rate by half a percentage point in September, it signaled that it’s shifting into a rate-cutting mode after a series of hikes that started in March 2022 to combat inflation. That’s reason to celebrate if you have high-interest debt or expect to buy a home or car in the near future. But if you’re a risk-averse investor who has enjoyed earning 5% or more on your savings accounts, you probably aren’t joining in the festivities.

Rates on bank savings accounts and certificates of deposit were starting to decline even before the Fed’s September rate cut and are likely to fall more in the months to come. Kiplinger expects the Fed to cut short-term interest rates a quarter percentage point at one or both of its November and December meetings and to continue cutting rates into 2026.

While many banks will lower rates on savings accounts—if they haven’t already—it may still be possible to find savings accounts that are paying decent yields, says Yuval Dan Bar-Or, a finance professor at the Johns Hopkins Carey Business School. New online banks may continue to offer competitive rates on high-yield savings accounts to attract customers, he says. (For top-yielding accounts, see the tables on page 51.)

The downside is that banks can lower rates on savings accounts at any time. Investing in a CD will lock in the current rate until the CD’s term ends. But opening a CD makes sense only if you know you won’t need the money before it matures, because you’ll usually pay a penalty on an early withdrawal.