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The probability that interest rates will fall this year is very high. According to the CME Group’s FedWatch tool, 100% of interest rate traders expect the Federal Reserve to cut rates in September.
When interest rates fall, banks and credit unions also lower the interest on their accounts. You may have seen advice on how to prepare for this, such as investing your savings in the highest-interest certificates of deposit (CDs) to lock in an interest rate now.
You can certainly do that if you know you won’t need the money any time soon (most CDs have penalties for early withdrawals). Personally, I leave my money where it is, in a high-interest savings account. And I don’t worry about falling interest rates for one simple reason.
It is a saving, not an investment
Like many people, I have savings and investments. When investing, my goal is growth, which is why I invest heavily in the stock market through a brokerage account. Historically, long-term returns have averaged about 10% per year. It’s smart for almost everyone to invest to build wealth for the future.
Saving is different. I have an emergency fund for my financial security and I also save to pay for future expenses, including vacations and expensive purchases.
Growth is not my goal with my savings. I want to get a competitive interest rate on it, which is why I keep it in a high-yield savings account. But I don’t need to get the highest possible return. That’s what I have investments for.
There are many ways to get more out of my savings. I could switch savings accounts to earn 0.5% more. Or I could open CDs so I’m protected when interest rates drop. But for me: It’s worth keeping it simple. I don’t want to constantly chase the highest APY or keep an eye on the maturity dates of my CDs. I just want my savings to be safe and to earn a reasonable interest.
How to manage your savings
Figuring out what you want to do with your savings doesn’t have to be complicated. Start by looking for an account with the following features:
For accounts that meet all of these criteria, check out The Ascent’s list of the best high-yield savings accounts.
Once you have an account, you can deposit your savings there. The interest rate can rise and fall from time to time depending on what is happening with interest rates overall. As long as you have a high interest account, you can be sure that you are getting a good interest rate.
If you have savings that you don’t need any time soon, you can open a CD for them. CDs can be useful if they fit your financial goals, but there’s nothing wrong with just leaving your savings in a savings account. It’s easy, straightforward, and gives you more time to focus on other things.
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