Money Management

What do the Fed rate cuts really mean for your money? Check out a few big changes you can expect to see. [[{“value”:”

The Fed announced a 0.50% rate cut on Sept. 18, and the interest rate cuts are likely to keep coming. According to the Fed’s latest forecast, America can expect to see another 0.50% of rate cuts by the end of 2024, and another 1.00% of interest rate cuts in 2025.

If the Fed continues with the current path of cutting interest rates, this will have big implications for the economy, your bank account, and your personal finances. Here are a few possible winners and losers as the Fed cuts interest rates.

1. Winner: Borrowers

Lower interest rates are generally good news for borrowers. If you’ve been waiting to take out an auto loan, apply for a personal loan, or transfer a credit card balance to a lower APR card, the Fed’s rate cuts are likely going to be helpful for you.

2. Loser: Savings accounts

Lower interest rates will typically result in a lower yield on savings accounts. Before the Fed’s 0.50% rate cut, the best savings accounts were paying up to 5.31% APY. Those yields are likely to come down quickly. As of Sept. 21, 2024, some of The Motley Fool Ascent’s picks for best savings accounts were offering 4.50% to 4.85% APY.

Those APYs on high-yield savings accounts are still pretty good. It’s still worth opening a savings account and earning as much yield as you can. But if you have cash in a savings account or money market account, you’re likely going to notice a little less growth in your account balance going forward.

3. Winner: Mortgages

Higher interest rates in 2022 and 2023 caused a near-freeze in the U.S. housing market. When mortgage rates go up, home buyers have less purchasing power and might be inclined to keep renting.

And many existing homeowners locked in lower-interest mortgages during the pandemic and didn’t want to give up those cheap rates — even if they wanted to upgrade to a new home. This caused a shortage of housing supply and a shortage of home buyers.

Good news: Lower interest rates are likely to lead to lower mortgage rates. Mortgage rates have already come down in recent months as the bond market anticipated Fed rate cuts. The average 30-year fixed rate mortgage has dropped about 1.70% from the end of October 2023 to Sept. 19, 2024.

This could make refinancing your mortgage a better deal — and could encourage more home buyers and home sellers to get back into the housing market.

4. Loser: CDs

Certificates of deposit (CDs), like savings accounts and money market accounts, are likely to see immediate impacts from lower Fed interest rates. Some of the best 1-year CDs are still offering 4.50% APY or higher, even after the Fed’s 0.50% rate cut.

If you want to lock in a good APY for the next year (or more) in case the Fed keeps cutting interest rates, opening a CD could be a good choice. But beware of early withdrawal penalties — CDs are a big commitment, and savings accounts or money market accounts are likely a better choice for many savers who don’t have lots of extra cash.

5. Winner: Your investment accounts (maybe!)

No one knows for sure what will happen next in the stock market or bond market. But lower interest rates could be good news for investors.

If the economy stays strong and the Fed keeps cutting interest rates into 2025, stock prices could go up. Bond prices could also go up; lower interest rates tend to mean higher prices for bonds.

6. Winner: Your career (ideally!)

The Fed’s 0.50% rate cut is generally being interpreted as a sign of good news and a hopeful future for the U.S. economy and job market. By cutting interest rates, the Fed is sending a signal that it’s less concerned about inflation and more concerned about supporting maximum employment for American workers. Lower interest rates mean that money can flow more freely — and more of it might flow toward you.

With lower borrowing costs for corporations and lower interest rates on fixed income assets like bonds and cash, companies might invest in hiring more people, building more facilities, buying more equipment, and creating new growth. Consumers might get incentivized to spend more money, buy new homes, and keep the economy growing.

A healthy economy could be good news for your career and your earning power. Your next job offer, pay raise, or big promotion might be more possible now, thanks in part to economic optimism generated by lower interest rates.

Bottom line

Fed interest rate cuts are already spreading their influence throughout the U.S. banking system and economy. Even if your CDs and savings accounts don’t pay as high of a yield as they used to, lower interest rates are likely to have positive effects in other areas of your financial life.

Hopefully, we can all be winners of lower interest rates with bigger economic growth in 2025.

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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 positions in and recommends U.S. Bancorp. The Motley Fool recommends Flow. The Motley Fool has a disclosure policy.

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Sam’s Club beats Costco on membership price. But read on to learn about one big advantage Costco has over Sam’s Club. [[{“value”:”

Joining a warehouse club can help you save money on groceries and household products. But you probably don’t need multiple memberships.

Depending on where you live, you may have access to both Costco and Sam’s Club. When it comes to the cost of a membership, Sam’s Club is the clear winner.

A regular membership at Sam’s Club normally costs $50 per year, while a Plus membership that gives you cash back on purchases is $110. Costco, on the other hand, charges $65 for its basic membership per year and $130 for an Executive membership, which, like the Plus membership at Sam’s Club, lets you earn cash back on purchases.

But even though Sam’s Club costs less to join, there’s one big advantage to choosing Costco you should know about.

It’s a matter of quality

Costco and Sam’s Club both have a signature brand you’ll find on various products throughout the store. At Costco, it’s Kirkland, and at Sam’s Club, it’s Member’s Mark.

Both brands have a good reputation. But Costco’s Kirkland brand is known for its extremely high quality. And Member’s Mark doesn’t necessarily have that same reputation.

You should also know that there’s one specific Kirkland product that wins out on quality: gasoline. Costco’s signature Kirkland gas is TOP TIER certified. It’s designed to lead to better performance and a clean engine.

You might save a similar amount of money on gas whether you fill your tank at Costco or Sam’s Club. But at Costco, your lower price per gallon might also provide more fuel efficiency.

Sam’s Club’s gas is not TOP TIER certified. And while that doesn’t mean it’s low in quality by any means, there’s a notable difference compared to Kirkland gas.

Costco also edges Sam’s Club out on returns

Costco and Sam’s Club are known for their flexible return policies. And both give you 90 days to return electronics and major appliances. But whereas Costco gives you 90 days to return cellphones, at Sam’s Club, you only get 14 days. That’s a pretty narrow window to try out an expensive device.

Incidentally, Costco and Sam’s Club do not allow you to return gift cards and event tickets. So it’s mostly the cellphone category where there’s a notable difference in the two stores’ return policies. And honestly, this alone is not a reason to choose Costco over Sam’s Club, since a cellphone isn’t exactly the sort of thing you’re buying every week.

However, the quality of the Kirkland brand could be a good reason to join Costco instead of Sam’s Club, despite the higher membership cost. You may find that you can get better value out of a Costco membership because of how great the Kirkland brand is and because of the savings involved.

But even that shouldn’t be the only thing that goes into your decision. You should also consider store location. If you have a Sam’s Club store that’s much closer to your home than Costco, or vice versa, that’s something that matters a lot. The easier it is to get to a warehouse club store, the more likely you are to go, which helps you get great value out of your membership. You’ll need to look at the big picture when making your decision.

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Add on the competitive 0% interest period and it’s no wonder we awarded this card Best No Annual Fee Credit Card.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Scoring cash back from a credit card could put free money in your pocket. But read on for a better way to get money for free. [[{“value”:”

Using a credit card is a convenient way to shop. With a credit card, you don’t have to worry about having enough cash on hand. Plus, credit cards often allow you to rack up cash back on your purchases. And sometimes, you can get bonus cash — for example, 2% or 3% on purchases like groceries and gas, which are items you’re likely buying anyway.

And while a 1% cash back rate would put $1 back in your pocket per $100 spent, a card offering 2% or 3% gives you $2 or $3 instead. Over time, that extra money adds up. But while credit card cash back is nice to have, you should know about a less risky way to score free money.

The problem with credit card cash back

There’s nothing wrong with using a credit card for convenience and earning cash back in the process. But you shouldn’t count on cash back from your credit card to pad your wallet.

The reason? You have to spend money to get that cash back. And your brain might trick you into overspending because it knows there’s an incentive to rack up a balance.

Say your credit card gives you 1% back on all purchases, and you spend $2,000 a month. That’s $20 coming your way in cash back, which is a very small percentage of your total tab.

But you might rationalize that $2,000 in spending by saying, “Well, at least I’m getting some of that money back.” In reality, though, you’d be better off cutting your spending by $200 a month and boosting your savings that way.

Better ways to earn free money

Here are two better options for earning free money.

A savings account or CD

Rather than look to your credit card as a source of cash back, try earning risk-free cash back by putting more money into the bank. Whether you opt for a savings account or certificate of deposit (CD), you get a safe place to put your money, and you earn interest without having to go out and spend money.

If you’re not sure whether a savings account or a CD is right for you, think about whether you can afford to cut off access to your money for the duration of a CD. If you withdraw from a CD early, there’s usually a penalty fee involved. So if you’re torn between a savings account and a 12-month CD, for example, ask yourself what might happen if you can’t use your money for an entire year.

And either way, make sure you leave enough in a savings account to cover at least three months of essential bills before putting money into a CD. That’s your minimum emergency fund.

An investment account

You may also decide that instead of a savings account or CD, you’d like to invest in a brokerage account instead. This carries more risk than a savings account or CD because your principal is not guaranteed.

You could invest $1,000 and see your portfolio value fall to $800 a few months later. If you put $1,000 into a savings account or CD, you can’t lose any of that money as long as your bank is FDIC-insured and your total account balance is not above $250,000.

But over the past 50 years, the stock market’s average annual return has been 10%. If you put $1,000 into stocks and score that same return, in 20 years, your $1,000 could be worth a little over $6,700.

And yes, there is some risk involved in investing, but you can lower it by investing over a long period of time. And while you’re technically spending money to make money, since you’re buying stocks, you’re spending money on investments, not things, which is the case with a credit card.

There’s nothing wrong with continuing to earn credit card cash back. But if you want to actively chase free money, savings accounts, CDs, and investments are all better options.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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