Money Management

The Fed is likely to cut interest rates in 2024, impacting Americans’ personal finances. See what it means for your savings. 

The Federal Open Market Committee (FOMC) of the Federal Reserve Board (aka the Fed) is a group of bankers, lawyers, and economists who are some of the most powerful people in America, because they control the price of money. By raising or lowering interest rates, the Fed helps guide the course of the economy, with wide-ranging effects on how people spend, save, and invest.

During 2022-2023, the Fed raised interest rates several times to fight high inflation, from near-zero to over 5%. As of December 2023, the effective federal funds rate is 5.25%-5.50%. This rate helps determine important aspects of your everyday financial life, such as the cost of home mortgages and auto loans, the interest rates on credit cards and personal loans, and the annual percentage yield (APY) on your savings account.

But in recent months, there have been positive signs in the battle against inflation. Consumer prices have been slowing, and as a result, the Fed indicated at its December 2023 meeting that it’s likely to cut interest rates in 2024. Wall Street experts generally believe that interest rates might decline in 2024 by around 150 basis points (that’s Wall Street-speak for 1.5 percentage points).

No one knows for sure if the Fed will cut interest rates in 2024, or by how much. But in case interest rates decline, here’s what it means for your savings account APY — and what you can do about it.

Lower interest rates = (probably) lower savings account APYs

The best savings account APY rates tend to track pretty closely with the federal effective funds rate. If interest rates go down next year, savings account APYs will also probably go down by a similar percentage. For example, let’s imagine that by the end of 2024, interest rates have declined by 1.5 percentage points to a range of 3.75%-4.00%. This would mean that the best high-yield savings accounts (which are currently paying 5.30% APY as of December 2023) might offer only 3.80% APY by December 2024.

Keep in mind that not all banks pay the same APYs on savings. The national average savings account APY, as of December 2023, is only 0.46% according to the FDIC. Just because the Fed has kept interest rates at over 5% doesn’t mean that every bank has to pay those rates on its savings accounts or certificates of deposit (CDs). Bigger banks often pay lower interest rates on savings accounts, while some of the best savings account APYs can be found at online banks and smaller community banks that are more eager to compete for your deposits.

So if the Fed cuts interest rates in 2024, your savings account is likely to become a little less profitable. Let’s look at what you should do instead.

What to do if your savings account APY goes down

First, if you notice a drop in your APY, don’t panic. This is normal, and everyone else in the banking system is going through it. Your savings account APY is not fixed; it can fluctuate as the Fed changes interest rates (or if your bank decides to start offering a different APY).

Here are a few personal finance situations where you might need to worry about a drop in your savings account APY — and what to do next:

Not enough emergency savings: Do you already have three to six months’ worth of basic expenses in an emergency savings fund? If not, ignore the APY, and just keep saving. Keep putting more cash into your savings account until you have a bigger safety net. Even if your emergency savings aren’t earning much interest, you need that cash to be safe in an FDIC-insured account, and easy to access in case of unexpected expenses or lost income.Saving for short-term goals: Are you using your savings account to save for a near-term purchase, like buying a new car or making a down payment on a house? If you want a higher APY that will stay the same as interest rates decline, you might want to consider moving the money into a CD. The best CDs sometimes offer fixed APY rates that are higher than a bank savings account — but make sure the CD term (such as one year, two years, etc.) is the right level of commitment to fit your goals and timeline.Too much money in cash: This is a good problem to have, but some people have too much money sitting in cash. If you already have an ample emergency fund, and you have extra money in a savings account or money market account, you could be missing out on opportunities to earn higher yields in the stock market. A drop in interest rates could give you the motivation to make that money work harder. Investing in stocks and bonds, and putting extra cash into tax-advantaged retirement accounts like a traditional IRA or Roth IRA, could help you earn a bigger return on your money.

Bottom line: No one knows what the future holds. The economy could change in ways that make the Fed want to hold interest rates steady, or even raise interest rates again. But if inflation continues on its downward path, the general consensus on Wall Street is that we’re in for a few rate cuts in 2024. If that happens, your savings account APY is likely to go down. But you still have options for how to make the most of your money.

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Here comes the new year — and this writer is getting ready for a major financial commitment. Read on to learn why buying a house has taken so much prep. 

As I write this, we have less than two weeks left of 2023. And by the time you read it, 2024 will be even closer. As the days go by, I feel antsier and antsier, because with any luck, my days as a renter will soon be behind me. My 2024 New Year’s resolution is to buy a house, and I spent 2022 and 2023 working toward this goal.

When you consider my history (35 moves and counting) as well as my less-than-rosy experience with homeownership in my 20s, it’s perhaps not surprising that I want this so badly. I was not ready to buy a house that first time, and yet I did it anyway — only to run into major financial difficulties and spend several years getting out from under a house I couldn’t afford to keep (in a state where I no longer lived). This time, things are different. Here’s what I did for the last two years to get ready for this milestone.

I got out of debt with some encouragement from a professional

My personal finances have never really been in great shape. Thanks to constantly moving and needing to re-establish myself in a new part of the country every few years, as well as never really earning enough money to be able to think long term, I have basically always lived paycheck to paycheck. Going into another home purchase in those circumstances would have been a grave mistake. Becoming a homeowner has a major impact on your finances, after all.

I started meeting with a Certified Financial Planner in early 2022, and having a neutral third party look at my finances without bias was incredibly helpful. I also got the cold reality check I desperately needed — no, it wasn’t a good idea to buy a house if I still had high-interest debt. So getting out from under that formed my 2022 plan. I was fortunate enough to be able to take on a side hustle, and I brought all of my energy to the situation. I snowballed my debt payoff, and owed exactly $0 to my creditors inside of just seven months — three fewer than I had originally predicted. Once I was out of debt, it was time for phase two of the plan.

I spent more than a year saving money

Homeownership is expensive. There’s no way around it. Not only do you have to make a down payment to a mortgage lender to get a loan in most cases, but you’ll also encounter a lot of other expenses along the way. You’ll need to pay various fees to get the mortgage loan in place (called closing costs). And then once the house is yours, you’ll also need to pay to move (hiring movers will make my own next move more expensive, but it’ll be worth it). And you’ll be officially responsible for anything that goes wrong with the house. So having a solid emergency fund is even more important.

With all of these various costs in mind, I vowed to save $50,000 in 2023. This was the bare minimum target that would allow me to make a solid down payment on a home in my area, as well as cover closing costs, hire movers, and leave me with cash left over for future repair bills. I was lucky in that I could quit my salaried job in early 2023 and fully lean into freelancing.

Freelancers work on our own schedule, and can often increase our income as needed. If you’ve got a major goal to save for, not having a fixed income can definitely help. As it turned out, I made my savings goal ahead of schedule, and then turned around and decided to increase it. The more I can save ahead of calling the mortgage lender and real estate agent I picked out, the more peace of mind I’ll have going into this expensive process. Plus, mortgage rates are higher than we’ve seen in a few years (Freddie Mac says 6.67% as of this writing; compare that to rates around 3% in 2021). That’ll make my costs even higher.

Achieving a huge financial goal requires a lot of preparation

I have a long history of being stubborn, and my approach to getting ready for homeownership is no exception. It worked out well that my personality makes it easier for me to laser-focus on the important things and then do whatever it takes to achieve a goal.

Since buying a house is the most expensive purchase the average person is ever likely to make, taking this much time and energy to truly get ready to jump in is a good idea. Becoming a homeowner for the wrong reasons, or before you’re ready, or when your finances are already on shaky ground is a bad idea. Instead, take a page from my book — focus on laying the groundwork first for the best chance of success.

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When it comes to New Year’s resolutions, it’s best to pick those you can actually do. Keep reading for money resolutions that are well within your reach. 

Ready to make a financial New Year’s resolution? Lots of people are — The Ascent’s survey on financial goals for 2024 found that two-thirds of respondents intend to set one. While it’s tempting to go big, if you want the best chance of meeting your goal, you might want to temper your expectations. Here are three realistic financial goals that’ll change your life for the better.

1. Save a small emergency fund

The most common recommendation for an emergency fund is to save three to six months’ worth of cash in a savings account. But if you are starting from square one and have zero money saved, I may as well tell you to save $1 million. I lived without emergency savings for years, and I took on debt, repeatedly, to cope with the unplanned expenses life throws at all of us. It wasn’t fun.

Instead of shooting for the moon, why not set a more realistic savings goal for your first emergency fund? Even $1,000 at your disposal can help you avoid (or lessen) the debt you need to take on if you’ve got an emergency expense. Let’s say you’re in a minor fender bender in your car, and your auto insurance deductible is $500. If you’ve got $1,000 sitting in the bank, you can cover that expense and get your car repaired — without debt. Having any amount of money saved and ready for an emergency can help your peace of mind in 2024.

If your budget is too tight as it is, consider ways to free up a little more cash to save. Shop around for a new car insurer, or perhaps switch internet service providers to one that’s cheaper. You might also take on a casual side hustle for a few hours a week — I have a friend who paid off a significant amount of debt by driving for ride-hailing and food delivery services a few nights a week. You could save what you make (less taxes) and turn that into an emergency fund.

2. Improve your credit score

I added 100 points to my credit score in less than a year, but any amount of improvement to yours can make a difference in your finances. Imagine being able to more easily borrow money the next time you need to — or even just to qualify for one of the best travel credit cards. Building a stronger credit score is a very worthwhile and realistic goal for 2024.

How do you do it? Start by making a renewed commitment to paying your creditors on time. Not only will you avoid costly late fees, but since payment history is such a huge part of the puzzle (it accounts for 35% of your FICO® Score — the biggest piece of the pie), making on-time payments will have a positive impact on your credit. You can improve it further by paying down some existing debt, if possible — this’ll improve your credit utilization ratio (30% of that FICO® Score is amounts owed).

Finally, get a copy of your credit reports from each of the three consumer credit bureaus. These are free every week from AnnualCreditReport.com. Check them for errors — if you find any, you can dispute them with the credit bureau in question. If errors are removed from your credit report, you’ll see a better credit score.

3. Get better at managing your bills

Managing your personal finances can be a giant pain, to put it bluntly. A lot of us would rather not actually dig into money management, and instead practice avoidance. If you don’t look at your check account balance, you can pretend you’re not broke. But I promise you, this technique isn’t wise. Instead of putting your head in the sand, why not resolve to build good habits around paying your bills and checking up on your finances?

I recommend making paying the bills a routine. Every week, I sit down to pay whatever is due that week, and I cross the bills off my paper calendar. In the process, I also “balance my checkbook” by keeping track of how much is in my checking account, both before and after bills are paid. This tells me how much I should have in that account, and makes it less likely that I will accidentally overdraft it.

If you are now cringing at the prospect of digging into bills the way I do, there’s still a way for you to get better at managing them. You can arrange to have your bills paid automatically out of your bank account, and never worry about missing a due date ever again. It’s still a good idea to check on your account and make sure the bills are actually being paid, but this technique can save you time and worry.

Don’t assume that setting a financial New Year’s resolution must mean aiming for the stars. Real change takes time, and taking little steps in the right direction can do you a world of good. Consider these goals if you want the best chance of making a real change in the new year.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Mortgage rates stayed high over 2023. Read on for 2024 rate predictions from experts and learn when refinancing could be right for you. 

If you bought a home in the last year or so, the odds are good you ended up with a higher mortgage rate than you wanted, and therefore have a higher monthly mortgage payment. The nice thing about mortgage rates, however, is that they’re not forever — you can apply with a mortgage lender to refinance and swap your old rate for a new one.

Based on the rate forecasts issued by big names in the world of home loans, it seems likely that more Americans will be refinancing in the not-too-distant future. Let’s take a closer look at those expert predictions and learn why you might want to refinance in 2024.

What do the experts say?

To preface this section, I want to temper your expectations. The rates we saw during the height of COVID-19 in 2020 and 2021 were unusually low in the history of mortgage loans. So don’t get excited thinking that you may be able to swap a 7.5% mortgage rate for a 3% one in 2024. But trusted experts are calling for rates in the 6% range.

Fannie Mae’s December Housing Forecast predicted rates as low as 6.5% by the end of 2024. The Mortgage Bankers Association’s Mortgage Finance Forecast from December calls for 6.1% at the end of the year. And the National Association of Realtors (NAR) Q4 2023 economic outlook (from October 2023) predicts 6.3% to close out 2024.

None of these predictions are drastically lower than what we’re seeing right now — as of this writing, Freddie Mac notes that the average 30-year fixed mortgage rate is 6.67%. But it is encouraging that none of these outlets is predicting a spike in rates.

Is refinancing right for you?

If you’re currently sitting on a 7% (or higher) mortgage rate, 2024 could indeed be the right year to refinance, especially if expert predictions come to pass and we see rates around 6%. There are a few reasons to refinance, chief among them swapping your higher rate for a lower rate, which will save you money. You might also be interested in changing your mortgage terms (say, going from a 30-year loan to a 15-year loan) or type (FHA to conventional, for example).

Finally, you might want to take cash out of your home equity. To do this, you can exchange your existing mortgage for a new one in a higher amount, and receive some of the loan as cash. You can use that money for anything you want, including paying off high-interest debt. Even if you end up with a new mortgage at 6%, that’s better than the 20% (or higher) APR you might be paying on credit card debt.

To decide whether refinancing is a good idea for you in 2024, have a sit down with your finances and evaluate. If your credit score has improved since you first bought your home, you’ll have a better shot of appreciably lowering your existing rate. If it hasn’t, it’s worth taking the time to boost your credit score. It’s also a good idea to have some cash at the ready, because refinancing isn’t free — you’ll need to pay closing costs, just like you did when you got your original mortgage (and likely amounting to the same 2% to 6% of the loan amount).

Be sure to shop around with the best refinance lenders, because rates do vary, and you’ll never know how much you can save with a new mortgage unless you have a range of options to choose from. Plus, different lenders charge different amounts for closing costs.

If you’ve got refinancing on the brain for 2024, you’re surely not alone. Take the time to do your homework before applying to refinance, and good luck.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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