Money Management

The Federal Reserve is expected to lower interest rates in September. Read on to see how that might impact your finances — for better or worse. [[{“value”:”

There’s been good news for consumers recently about inflation. Since the start of the year, inflation has cooled off a lot, leading to less drastic price increases at the supermarket, gas pump, and just about everywhere.

A slowdown in the pace of inflation is also very likely to drive the Federal Reserve to lower its benchmark interest rate at its upcoming mid-September meeting. The federal funds rate, which is the rate banks charge each other for overnight borrowing, is sitting at a 23-year high. Once that rate comes down, consumer interest rates should follow suit, leading to less expensive auto loans, mortgages, and similar products.

But lower interest rates aren’t a totally good thing. Here’s how they might impact you.

Borrowing should get cheaper

While the Federal Reserve doesn’t set mortgage rates, credit card interest rates, and so forth, these rates tend to rise and fall in line with the federal funds rate. Consumers have been eager to see the Fed begin cutting rates since that’s apt to make it more affordable to borrow money. But you shouldn’t expect borrowing to become worlds cheaper overnight.

The Fed raised its benchmark interest rate gradually throughout 2022 and 2023, and we can expect the central bank to lower its interest rate gradually, too. You shouldn’t bet on a drastic drop in borrowing rates before the end of 2024. However, a year from now, it could be a much better time to sign a mortgage or finance a car than it is today from an interest rate standpoint.

Savings won’t earn as much

There’s a downside to lower interest rates you should know about. Right now, savings account and certificate of deposit (CD) rates are high, which means people with money in the bank are benefiting. But once the Fed starts lowering rates, savings account and CD rates should follow suit.

Again, this doesn’t mean that if your savings account is paying 4.5% now, you’ll be looking at an APY of 3.5% by the end of September. But you might be looking at a 3.5% APY on your savings at some point in 2025.

If you have enough money in your savings account to cover three to six months of essential bills (a healthy emergency fund), you may want to take any cash you have beyond that and use it to open a CD. If you do so before mid-September, you can capitalize on today’s strong rates before they start to fall.

All told, the Fed’s upcoming interest rate policies could be a mixed bag. If you’re looking to borrow money, relief may be in sight — though it could pay to sit tight for a few more months and wait for a few rate cuts to happen before signing a loan. If you’re looking to maximize your interest earnings in the bank, open a CD now if your situation allows for it. Also, pay attention to what the Fed does beyond September so you can make the right financial choices.

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Dropping the Federal Funds rate is going to have some big impacts on both savers and borrowers. Read on to find out what’s ahead for your money. [[{“value”:”

It’s been in the news for a couple of weeks now, but if you’ve been having a news blackout (I don’t blame you, election years get pretty intense), Federal Reserve Chairman Jerome Powell has indicated that when the Federal Reserve Board next meets in mid-September, the federal funds rate is likely to be decreased.

This is huge for a whole lot of reasons, but it will have ripple effects when it comes to your finances and savings account, both for better and for worse. Here are a few ways that this change is very likely to affect the most people.

1. Savings interest rates will decrease

When we think of interest rates, we usually think of the stuff we’re paying for — cars, boats, houses, that really amazing lamp you put on a credit card (no judgment here, it was a once-in-a-lifetime buy). But we seldom think about the inverse of borrowing: saving.

Although the federal funds rate doesn’t directly impact interest rates, it is the rate banks use to lend money to one another, so it has a huge influence on where interest rates are set. The Federal Funds rate held steady at 5.33% for a whole year, pushing banks to offer higher savings rates if they wanted to use your money to lend out to make more money with.

Well, when the federal funds rate starts to drop, as experts like those at CME FedWatch predict will happen soon, so does the savings rate. If a bank can borrow more cheaply from its fellow banks, why wouldn’t it?

This is a good time to consider moving your long-term savings from a high-yield savings account into a certificate of deposit while rates are still high.

2. The cost of variable rate interest products will likely decrease

What do I mean by “variable rate interest loans”? Credit cards, lines of credit that aren’t fixed, even mortgage loans that have adjustable rates — all of these can be influenced by the federal funds rate. That’s not to say it’s a guarantee that your credit card company will reach out to tell you it’s dropped your rate, but it’s certainly a possibility.

FedWatch is only predicting a 0.25% decrease for the federal funds rate right now, so in September, the impact might not be huge. But by the end of December, it expects there could be as much as a full percentage point drop in the federal funds rate, which is extremely impactful, especially on longer loans or those that compound more frequently.

This may also be an issue when it comes to your student loans, if you’ve not managed to get your rate secured with fixed interest. Hang tight and see where it goes before you lock.

3. Investment yields may drop

If you’re an investor, especially one who deals in things like bonds or bills, you may see that the yields on newer issues are smaller and smaller. This is once again due to the influence of the federal funds rate. Since the government and those other bodies that raise money with bonds and bills will be able to borrow for less, they’ll be offering less to everyday investors, too.

This sounds like a bad deal, but it might not be. If you already have a collection of bonds or bills from the 5.33% federal funds rate period, you may be able to sell them for more than they’re worth on the secondary bond market, since no one will be able to get a return that high for a while. It’s not a guarantee that your active bonds will be worth more than you paid for them, but the potential exists.

Make sure that you fully understand what you’re giving up before you make a move, but it might be a chance for you to gain some liquidity to put into other sorts of investments.

Every move the Fed makes has knock-on effects

There’s a reason the Federal Reserve moves with such care and precision. Everything it does affects literally everything in the monetary system. Dropping the federal funds rate can mean that interest rates across the board drop, including the interest rates for savings accounts. This is good and bad, depending on where you are in the balance.

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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.Kristi Waterworth has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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We’ve enjoyed high savings account rates for the last few years, but that seems likely to come to an end. Here’s why and what you can do about it. [[{“value”:”

High-yield savings account interest rates climbed from a low of about 0.30% during the pandemic to a whopping 5.00% APY as the government fought to ease inflation. Over the last few years, though, little has changed. Rates remain high and savers have enjoyed being able to earn hundreds or even thousands of dollars per year in interest.

But that’s not going to last for much longer. I think we have just a few more weeks before savings account interest rates start to fall. Here’s what that means for you.

Why savings account interest rates are going to fall

Banks are free to set their own interest rates, but they tend to follow a government benchmark: the federal funds rate. This is an interest rate that banks use to lend money to each other and it’s one of the main tools the Federal Reserve has at its disposal to encourage or discourage spending.

When the federal funds rate rises, bank interest rates tend to rise as well. This is true for both loans and deposit accounts. This sort of rate environment is great for savers and tough for borrowers. We usually see this happen when inflation is high, as it has been over the last several years.

When inflation starts to cool, the government is apt to cut the federal funds rate. This is what we’re seeing now. Most experts expect that the Federal Reserve will make its first rate cut in four years when it meets again in mid-September. It’s unclear how big the cut will be. Usually, it’s 25 basis points (0.25%), but the Fed has made larger cuts occasionally in the past.

What it means for you

Once the Fed cuts rates, it usually doesn’t take banks long to follow suit. Borrowing becomes more affordable and savers earn less on their money each month. But it’s worth noting that your interest rate drop may not correspond exactly with the federal funds rate. For example, if the Fed issues a 25 basis point rate cut, your savings account interest rate may drop by 20 or 30 basis points. That’s up to your bank.

There are a few ways you could handle this. The first is to simply do nothing. You will earn a smaller amount of interest on your savings account funds, but you’ll retain the easy access that savings accounts provide. And if you have a high-yield savings account, you’ll still earn a higher rate than what you could get with most brick-and-mortar banks.

If you really don’t want to sacrifice your high interest rate, you could try a certificate of deposit (CD) instead. These lock in your interest rate for the full term, which can be anywhere from a few months to several years. In exchange, you agree not to touch your funds for the full length of the CD term. If you’re comfortable with this tradeoff, a CD may help you earn more on your savings for now.

You could also split your money between both. Put short-term savings and your emergency fund in a savings account and move money you don’t plan to spend in the next couple of years into a CD to earn a higher interest rate.

One point to note is that, while many people expect rate cuts to begin in September, it’s probably not going to be the only one. We’ll probably see more throughout the last few months of 2024 and into 2025, so keep this in mind as you make your decision.

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Most people know factors like age impact insurance rates. Check out six lesser-known factors that might mean higher interest rates. [[{“value”:”

If you’ve ever shopped around for car insurance, you know different companies charge different rates for the same coverage. Obvious factors like age and the type of car you drive also impact how much you’ll pay for coverage. That makes sense; a teenager driving a sports car is more likely to file a claim than a 45-year old driving a station wagon.

But companies look at dozens of factors when determining your car insurance rate. Let’s look at a few lesser-known ones that can impact how much you’ll fork over in premiums.

1. Your credit score

You know you need a good credit score to land a competitive mortgage rate, but did you know it also impacts your car insurance rates? In some states, insurance companies look at your credit score to determine how likely you are to file a claim and how much that claim might cost them. A lower credit score can lead to a higher insurance rate, which means that a maxed-out credit card might cost you more than just interest.

2. The year, make, and model of your car

It makes sense that the type of car you drive will impact your rates, but insurance looks at far more than just the maker. The year and model can also impact rates. Newer cars are likely to have more security and safety features than older models, which can result in lower claims — and lower insurance premiums. Even factors like the weight of your car can impact rates because a heavier car may cause more damage in a crash.

3. Your driving experience

Age matters for insurance rates, but so does how long (and how well) you’ve driven in the past. A driver with 20 years of driving experience will pay lower premiums than a driver with two years of driving experience — even if they’re the same age. Taking driving lessons and having a clean driving record can help lower your rates.

4. Where you park your car

Where you live and park your car each night can also impact your rates. If you live in a densely populated area with high crime rates, you’ll pay more than someone who lives in a more rural area. But where you physically park your car (on the street or in a secure garage) can also impact what you’ll pay for car insurance.

5. Insurance laws in your state

When I moved from Jacksonville, Florida, to Chicago, Illinois, my car insurance rates actually dropped. That’s because Florida is a no-fault state, which means every driver pays for the damage to their own vehicle, no matter who caused the accident. This results in higher insurance payouts and higher premiums.

Illinois is an at-fault state, which means whoever causes the accident has to pay. (Or, more accurately, their insurance company pays.) If you live in a no-fault state, you may pay more.

6. How much you drive

The more miles you drive, the more likely you are to get into a car accident. If you work from home and walk your kids to school, you’ll pay less than a person with an hour-long commute each day. If your driving habits change, make sure your insurance company knows so it can adjust your rates.

Understanding the factors insurance companies use to calculate your premiums can help you find the best deal. If you don’t drive often, have a garage, or your car has after-market security features, you may qualify for lower rates.

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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.
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The goal for most Americans is to live comfortably in retirement. If you’re afraid you’re not ready, learn how to take control. [[{“value”:”

If the idea of retirement both excites you and fills you with dread, you’re not alone. A recent Gallup poll showed that only 43% of working adults expect to be able to afford a comfortable retirement. However, when Gallup asked actual retirees how they’re doing, 79% said they have enough money saved to live comfortably. In other words, for some, there’s a fairly large gap between their fears and reality.

One of the best ways to conquer fear of any kind is to face it head on. Here’s how.

Estimate your finances

Unless you’ve kept careful track of your personal finances, retirement-related anxiety may be due to not knowing how much more you need to save and invest. You can get an idea by taking the following steps.

Create an estimated retirement budget

Start by looking at your current household budget to determine which bills will stick with you and which you’ll get rid of before you retire. For example, if you’re carrying a mortgage into retirement, include that, along with everyday expenses such as utilities and groceries. If you’re currently paying any bills that will be paid off by the time you retire, cut those from the budget.

Add together all expected income sources

This includes personal savings, retirement accounts, pensions, Social Security, annuities, rental properties, and other funds you expect to receive. If you’re due Social Security but are unsure how much to budget, create an account at My Social Security.

My Social Security gives you access to all kinds of information, including your Social Security payments at different ages. Once you’ve totaled expected income, compare it to the estimated post-retirement budget.

What now?

You should now have a better idea of your situation. Let’s say you expect to bring in $3,000 monthly (after taxes), but estimate your retirement budget to be closer to $4,000 per month. Job one is to come up with ways to fill that $1,000 gap. That may mean putting more into a retirement account, cutting retirement costs by paying off debt, creating a new income stream, or some combination of the three.

Knowing where you stand financially may not relieve your retirement fear, but it does give you something concrete to focus on and work toward.

Decide if you’d like to work in some capacity

According to CBS News, approximately 1 in 5 people over 65 continue to hold down jobs. For many, remaining in the workforce is the only way to make ends meet. For others, working is about staying sharp, being socially engaged, and maintaining a routine. It’s about what works best for you.

If retirement is just around the corner and it doesn’t look like you’re going to be ready, consider whether a part-time job would fill the gap. If you have no interest in working beyond retirement, now’s the time to focus on plumping your retirement fund. Here are a few ideas to get you started:

Cut unnecessary expenses from your current budget and save the money. This includes subscription services, dining out, and spending money on high-interest loans and credit cards.Decide where you’ll live once you retire. If you’re in an area with a high cost of living, consider other parts of the country (or world) that are less expensive.If you’re healthy enough, consider a side hustle and add those earnings to your retirement bucket. A side hustle can be something you enjoy, like tutoring or pet sitting.

Embrace market uncertainty

If most of what you’ve saved sits in investments, you may worry about how your nest egg will survive a bear market. Here’s the truth: The stock market will rise, and it will fall. It has always been so. Ups and downs may be perfectly natural, but they also scare the socks off people.

Like the ebb and flow of the tides, stock market ups and downs are natural. You can plan for bear markets by having enough money in a cash account to draw from when one occurs. That way, the money you’ve invested can be used to snap up stock at a bargain price and grow in value with the next bull market.

Finally, you may not be able to avoid risks, but you can minimize them by diversifying your portfolio. Let’s say you’re bullish on tech stocks. Feel free to invest, but don’t put all your eggs in the tech basket. You can afford one sector to drop as long as your portfolio is balanced.

The point is this: If the idea of retirement finances causes you to break out in hives, do what you can to take control in the time you have left between today and retirement. The more you focus on moving in the right direction, the less time you’ll have to worry about what could go wrong.

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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.Dana George has no position in any of the stocks mentioned. The Motley Fool recommends Flow. The Motley Fool has a disclosure policy.

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Is now the right time to buy a new car? Check out five signs you should wait before making a purchase. [[{“value”:”

There’s nothing quite like that new (or new-to-you) car smell. The thrill of buying a new car can overwhelm even the most financially minded folks. If you’re considering purchasing a new-to-you car but aren’t sure if it’s the right time, there are a few factors to keep in mind.

First, determine if a new car is a want or a need. You need to get to school or work, and you need a vehicle that won’t leave you stranded on the side of the road. You don’t need a brand-new model of a specific car, leather seats, or a 200-horsepower engine. If you can afford those features, then great — but they aren’t a need.

Once you’ve figured out how much of the new car purchase is a want or a need, consider these other factors. If they apply, consider spending time getting a handle on your budget before making a purchase.

1. Your debt-to-income ratio is above 35%

Debt-to-income ratio (DTI) is a metric that compares the amount you pay each month toward debt to your gross monthly income. Lenders use this metric to calculate whether you can afford payments on a loan.

Here’s an example:

Monthly debt payments: $1,500Monthly gross income: $5,000

To get the ratio, we divide 1,500 by 5,000, which is 0.3, and then multiply that by 100 to get the percentage. With those numbers, your DTI is 30%, which is decent, as lenders view anything below 35% as favorable.

2. Your income is unpredictable or unstable

If you’re hearing rumors of layoffs, you work in an industry that isn’t growing, or have any other reason to believe your income might change soon, now is not the time to buy a new car unless you absolutely must.

Even if you have the cash to buy a new car outright, you’re better off saving it in a high-yield savings account for emergencies. And speaking of emergency funds, make sure you have one of those, too.

3. You don’t have enough savings to cover a $1,000 expense

According to Forbes, 1 in 4 Americans have less than $1,000 in savings. That means nearly 25% of Americans can’t easily cover bigger emergencies like a trip to the emergency room or a rental car after a car accident. If you don’t have the funds to cover at least a $1,000 emergency, work on your savings before buying a new car.

4. You can’t afford a 20% down payment

Ideally, you should be able to put 20% down on your car. This comes from the car buying guideline called the 20/4/10 rule, which says you should be able to put 20% down, finance the car for no more than four years, and keep your car-related expenses below 10% of your income.

While it’s just a rule of thumb, following it can help you avoid negative equity and ensure you can afford other (pretty important) expenses like a mortgage or food.

5. Your only financing options have interest rates above 10%

A lot of factors impact your interest rate, including your debt-to-income ratio and your credit score. If you’ve shopped around and all the lenders are offering you interest rates above 10%, that’s likely because they see you as a higher risk.

The average interest rate for a new car if you have a credit score between 660 and 689 is 9.678%, while the average used-car interest rate for someone with a credit score between 660 and 689 is 10.488%. If your interest rates are higher, it likely means you have debt, possibly some missed payments, or have defaulted on loans in the past.

Higher interest rates also lead to higher car payments, so you can save quite a bit by spending time getting your credit score up before making a car purchase.

Final thoughts

If you currently have a car that gets you from point A to point B and any of the above factors are true, it’s a good idea to put off buying a car for now. Find ways to pay down your debt and use budgeting tools to get on firmer financial footing. When you’re ready, make sure to shop around for cheaper car insurance to lower your expenses.

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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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